Guinness Nigeria Plc

Nigeria Corporate Analysis May 2020

Rating class Rating scale Rating Rating outlook Expiry date

Long term National A+ (NG) Stable May 2021 Short term National A1(NG)

Financial data: Summary rating rationale

(USD’m comparative)*  The ratings reflect Guinness Nigeria Plc’s (“Guinness” or “the Company”) 30/06/18 30/06/19 significant (but not dominant) market position within the Nigeria brewing N/USD (avg.) 305.6 306.7 industry, with a well-diversified products portfolio of brands targeting N/USD (close) 306.5 306.9 different pricing points. The Company’s competitive position is supported Total assets^ 496.8 521.8 by its strong brands and the long operational and strategic support from its Total debt 44.8 64.9 parent company, Diageo Plc, a major global brewing group, with operations Total capital^ 282.5 288.1 in more than 180 countries. Cash & equiv. 24.3 15.5  Short to medium term downside risks are elevated due to the significant Turnover 467.9 428.8 negative impact the COVID-19 pandemic is likely to have on sectors such EBITDA 72.6 61.6 as hospitality and entertainment, key sectors driving alcohol and beverage NPAT 22.0 17.9 consumption. Nevertheless, GCR considers the longer-term demand trend, Op. cash flow 27.0 38.4 underpinned by a youthful and fast growing population to be positive.

Market cap Over 22%  Guinness has evidenced variability in earnings over the year, reporting * Based on Central Bank of Nigeria’s weaker profitability in recent periods due to tough operating conditions, exchange rates. heightened competition, and consumers trading down to value brands. ^Net of intangible assets. Nevertheless, Guinness’ strong brands suggest that the renewed focus on

mid to premium segment of the market should support firmer margins.

Rating history:  Margin pressures have been evidenced over the review period, largely due to continuous depreciation of the Naira, which has raised the prices of Initial/new rating (May 2020) imported raw materials and other capital/operating expenses. Cost pressures Long-term: A+ (NG) are expected to worsen in the medium term given the rising uncertainties Short-term: A1 (NG) within the foreign exchange market, coupled with inability to fully pass on Rating outlook: Stable additional costs to consumers. This notwithstanding, management is

confident that earnings margins will stabilise due to the efficiency initiatives, centred on cost rigour and high margin products. Related methodologies/research:  The Company benefits from a favourable cash conversion cycle that

Global Master Criteria for Rating facilitates strong cash generation and liquidity. Nevertheless, uncertainty in Corporate Entities, updated February 2018 the currency markets has forced Guinness to increase inventory holding to ensure sufficient raw materials are readily available. Working capital Glossary of Terms/Ratio, February 2018. funding has been supported by related party payables, as well as bank facilities from six Nigerian banks and USD denominated intergroup loans.  Gross debt has reduced substantially since FY18, following part settlement GCR contacts: of outstanding bank facilities and the conversion of intergroup loans to equity. Thus, gearing metrics moderated, with net debt to EBITDA at 86.1% Primary Analyst at end-March 2020 (“3Q FY20”), from a high of 285.2% at FY16, while net Femi Atere debt to equity registered below 18%, comparing favourably to its major Credit Analyst peers. Also, interest coverage has increased above 4x in recent period. [email protected]  Access to liquidity remains strong with over N16bn in unutilised bank debt

Committee Chairperson and USD23.1m of intercompany loans available. Guinness, also plans to Dave King establish a Commercial Paper Issuance Programme to refinance its maturing short term facilities, as well as diversify sources of short term funding.

Analyst location: Lagos, Nigeria Factors that could trigger a rating action may include

Tel: +234 1 9049462 Positive change: Sustained growth in revenue and firmer margins, that translates into more stable profitability and cash flows. www.globalratings.com.ng Negative change: A worse than anticipated disruption to demand from COVID-19 and/or severe weakness in the consumer market, could see earnings fall substantially. Excessive debt utilisation would see credit protection deteriorate.

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Business profile Aside from the two major shareholders listed in Table 2,

Incorporated in April 1950, Guinness has evolved over no other shareholder held more than 5% of the the years from a trading company importing Guinness Company’s issued share capital as at 31 December 2019. Stout from Dublin into one of the leading brewing Guinness Overseas Limited and Atalantaf Limited are companies in Nigeria. Guinness became a subsidiary of part of Diageo Plc, and as such, total shareholding of Diageo Plc, a global brewing company, after Guinness Diageo Plc in Guinness stood at 58.02%. Diageo Plc is International merged with Grans Metropolitan to form a British brewing company headquartered in London, Diageo Plc in 1997. Guinness engages in brewing, but with around 80 offices globally and trading in over marketing and selling of alcoholic and non-alcoholic 180 countries. Diageo is committed to providing technical, strategic and funding support to Guinness. drinks. Effective 1 January 2016, Diageo, through some of its members granted Guinness the exclusive rights to Table 2: Major shareholders % holding the know-how, manufacturing, distribution and Guinness Overseas Limited 50.18 marketing of international premium brands of Diageo. Atalantaf Limited 7.84 As such, Guinness is the only total beverage alcohol Other individual and institutional shareholders 58.02 Total 100.00 company in Nigeria with a portfolio of brands spanning Source: Guinness AFS non-alcoholic beverages, spirits, lager and stout. The Company was listed on The Nigerian Stock Exchange Financial reporting (“NSE”) in 1965. Guinness’s audited financial statements were prepared in accordance with International Financial Reporting Guinness operates through two breweries (Ogba Standards (“IFRS”), as well as the requirements of and Benin), as well as a spirits plant in Benin to CAMA and the Financial Reporting Council of Nigeria facilitate the production of spirits brands locally. In Act. The Company’s external auditor has issued clean 2018, the Company expanded its Ogba Brewery by audit opinions on all the financial statements in the years adding a PET line with a sizable investment to produce under review. adult premium non-alcoholic drinks (‘APNAD’), which Earnings diversification include Malta Guinness, Dubic Malt and Orijin Zero brands. Guinness has a well-diversified product offering, with about 24 brands, divided into 21 alcoholic brands and 3 Shareholding and corporate governance alcohol-free drinks.

Table 1: Corporate governance summary The range of alcoholic brands increased significantly Board composition Number of Directors 13 following the granting of exclusive distribution rights to Independent Non-Executive Diageo’s brand. Products are spread across various 6 Directors categories including stout, lager, spirits and bitters, and Non-Executive Directors 5 (including the Chairman) Executive Directors 2 (including the Managing Director/CEO). across various pricing points. Nevertheless, given the Tenure of directors (excluding Subject for re-election at regular intervals significant competition in the value segment, Guinness the Managing Director) at least once every 3 years. is now heightening focus on the premium and Tenure of non-executives 9 years max. Separation of the chairman Yes. mainstream segments, which offer firmer margins and Frequency of meetings Minimum of quarterly. dovetail better with the companies internationalised Nominations, Governance and brand portfolio. This accounts for the substantial decline Remuneration Committee, Finance, Audit Board committees and Risk Committee, and Statutory Audit in revenue in the group’s value brand, Satzenbrau. The Committee. APNAD segment also contributes meaningfully to Internal control & compliance Yes, independent reports to board. Guinness’ revenue, underpinned by the Malta Guinness Independent auditor PricewaterhouseCoopers. Source: Guinness brand.

Guinness’s corporate governance framework complies Table 3: Earnings FY18 FY19 diversification with the relevant requirements of the Companies and Revenue % contr. Revenue % contr. Brand Guinness 44,723 31.3 45,322 34.5 Allied Matters Act (“CAMA”), Securities and Exchange Satzenbrau 16,260 11.4 4,450 3.4 Commission (“SEC”) and NSE regulations. The Board Malta Guinness 28,716 20.1 30,682 23.3 of Directors’ (“the Board”) functions include oversight Other Beer/RTD 13,251 9.3 11,101 8.4 of financial, operational and compliance issues, while Other APNAD 18,869 13.2 18,166 13.8 Mainstream spirits 11,658 8.2 12,111 9.2 the day to day responsibilities are delegated to the IPS 9,498 6.6 9,666 7.4 managing director and the management team. The non- Total revenue 142,975 100.0 131,498 100.0 executive directors comprise people from diverse Source: Guinness backgrounds, with a diverse range of professional As reflected in Table 3, there is some earnings competencies. The Board has a charter that governs its concentration to the Company’s flagship brands. powers, functions and responsibilities, and monitors However, these have a very wide distribution, with the compliance with applicable legislations, regulations, top 20 customers accounting for a negligible 3% of standards and codes by means of management reports. revenue in FY19. Over 95% of earnings are generated

from Nigeria, being the Company’s primary market.

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Guinness continues to explore various opportunities to among the Nigerian middle class and religious beliefs in expand performance across its various brands. some states (particularly the northern states).

Operating environment The sector has witnessed various waves of transformation over the years, with the number of The Nigerian economy registered annual real GDP players spiking from less than five (5) in 1970 to over growth of 2.27% in 2019 (2018: 1.91%). The growth thirty (30) in 1980. However, operational and economic was largely underpinned by relative stability within the challenges in the early 1980’s led to the closure of some oil producing areas and the foreign exchange market, breweries, leaving only the large firms with strong declining farmers-herders clashes, favourable climatic financial bases. Currently, there are more than ten conditions and increased monitoring within the land brewery companies in Nigeria, with five listed on the borders. However, the economy is in the midst of a sharp NSE (NB, Guinness, Champion Breweries, InterBrew slowdown due to the COVID-19 pandemic and the and Golden Guinea Breweries). Large scale brewing is substantial decline in crude oil prices and demand. Oil highly capital intensive, with substantial economies of prices fell below USD20/barrel in mid-April 2020, scale required to maintain low prices and remain against an average price of USD64/barrel in 2019, and dominant. This has contributed to the high proportion of are unlikely to recover meaningfully in the short-term. foreign ownership in the industry, with Guinness being The inflation rate registered at 12.26% in March 2020, owned by Diageo, Nigerian Breweries Plc (“NB”) and representing a seventh consecutive month-on-month Champion Breweries by Heineken, and International increase. While the Central Bank of Nigeria (“CBN”) Breweries (“InterBrew”) by ABInBev. In addition, high has maintained the monetary policy rate at 13.5%, it has levels of regulation are a barrier to entry. To ensure implemented certain policy measures to cushion the competitiveness amidst the changing dynamics, critical adverse impact of the COVID-19 outbreak, including a success factors include technological development, reduction in interest rates on all CBN applicable innovation, promotional strategies, consolidation and intervention facilities from 9% to 5%. While the apex wide distribution channels. The ability to expand and bank has increased focus on maintaining relative possibly acquire smaller players is also a major driving stability across all segments of the foreign exchange force in increasing market share and maintaining market, foreign reserves remain under pressure, dominance. declining from USD43bn in January 2019 to a low of Based on industry sources, NB and Guinness have USD34bn in April 2020. Given that the oil sector historically dominated the market. However, with accounts for at least 90% of foreign exchange earnings ABInBev expanding aggressively, particularly within and over 60% of government budgetary revenues, the the affordable market, competition has heightened in weak crude oil prices are a major concern. recent period. Other competitors within the spirits Overall, GCR expects a recession in 2020, with the segment include International Distillers Limited and continuing slowdown in economic activity expected to Pernod Ricard. This notwithstanding, Guinness have a significant impact on most sectors. remained resilient, reporting relatively strong margins, profitability and gearing metrics, supported by cost Industry overview and competitive position rigour and strong equity compared to InterBrew. Brewing is one of the major sectors within the Nigerian Food, Beverages and Tobacco industry, with long term Table 4: Competitive position product demand supported by population growth, an FY19 (N’m) NB Guinness InterBrew Champion Year end Dec. 2019 Jun. 19 Dec. 2019 Dec. 2019 emerging middle class and more focused marketing and Revenue 323,007 131,498 132,352 6,927 distribution efforts. However, the industry continues to Gross profit 131,251 40,129 45,003 1,932 witness heightened competition, particularly within the EBITDA 67,936 18,890 13,266 1,154 value segments due to lower disposable income. In Operating income 35,206 8,796 (13,560) 241 NPBT 23,352 7,104 (35,934) 241 addition to consumers being more price sensitive, Total assets 382,778 160,152 373,370 10,981 industry results have adversely been impacted in recent period by the increased excise duty rates which came Total debt 55,720 19,927 272,007 0 Less cash (6,361) (4,757) (33,540) (702) into effect since June 2018, adding to the inflationary Net debt 49,358 15,170 238,467 n.a pressures constraining the pricing of products. Equity 167,750 88,419 11,083 8,032

Other operational challenges remain the incessant Key ratios: Gross margin 40.6 30.5 34.0 27.9 pressure on the currency, which has raised the price of Op. profit margin 10.9 6.7 (10) 3.5 imported raw inputs (particularly malt barley), high cost Total debt : equity 33.2 22.5 2454.3 n.a of other locally sourced materials, cost of maintenance Net debt : equity 29.4 17.2 2151.7 n.a and of spare parts, driving the reduced margins recorded Total debt : EBITDA 82.0 105.5 2050.4 n.a Net debt : EBITDA 72.7 80.3 1797.5 n.a across the industry. Furthermore, distribution pressure Source: AFS stems from security concerns, rising demand for alternative products in the informal market (local gin Table 3 highlights the performance indicators of three of and herbal drinks), increasing health consciousness its listed peers based on their 2019 financial statements. Guinness’s competitive strengths include its cost Nigeria Corporate Analysis | Public Credit Rating Page 3

efficiency, the strategic support from its parent company Like other industry players, Guinness has experienced and continuous product innovation, which are expected rising margin pressure, triggered by the ongoing to support its market share. The Company continues to depreciation of the Naira, which has impacted the price invest in the development of local farmers and other of imported raw materials and other locally sourced processing companies to ensure sustainable supply of inputs. As such, the gross margin has declined steadily raw materials. In this regard, the Company has raised the from 46.4% in FY15, to 30.5% in FY19. Inflationary proportion of aggregate inputs sourced locally to 80% as pressure filtered through to EBITDA margin (which also of end-December 2019. tapered from 22.3% in FY15 to 14.4% in FY19), with operating profit falling to a low N8.8bn in FY19. This Although the fast population growth and rising income notwithstanding, management is confident that earnings levels bode positively for the industry growth, the margins will stabilise due to the efficiency initiatives, current economic uncertainties have increased downside centred on cost rigour and high margin products, rather risks for the industry. The disruptions due to COVID-19 than volumes. pandemic is expected to have a significant adverse impact on industry performance by FY20, with a Guinness has incurred substantial depreciation costs, number of companies being forced to close or reflecting the capital intensive nature of its business. In significantly scale down operations due to weak addition, the Company has also incurred amortisation demand. In addition, the volatility within the foreign expenses from its intangible assets, which include the exchange market (with a looming Naira devaluation) is distribution rights to Diageo’s IPS brands (amortised expected to increase cost of production, resulting in over five years) and concession rights granted by Edo further margin pressure over the medium terms as State Government to build and operate a certain road industry players might not be able to fully pass on the within the state for a period of ten years from 2015. additional cost to consumers. Charges on these items have accounted for over 50% of total depreciation and amortisation, and 8% of overall Financial performance expenses over the review period.

A five-year financial synopsis, together with a nine The net finance charge has fluctuated over the review month management accounts to 31 March 2020, is period, driven by loan utilisation during each period, reflected at the back of this report, supplemented by the combined with the high interest rate environment. A commentary below. review period high of N6bn was incurred in FY17, Guinness has reported volatility in revenue over the corresponding to the very high average debt level during review period. Growth to FY18 was supported by an the year. However, as debt was settled, the net interest increase in sales volume as international premium expense decreased to N2.1bn in FY18 and N2.0bn in brands were added to the portfolio, as well as some new FY19. Given the moderated operating profit combined local products. But heightened competitive pressure, with the high interest expense in FY17, net interest coupled with the tough operating environment has since coverage narrowed to 1.6x. However, this has risen to resulted in a decline. In addition, the Company also exceed 4x in recent period due to low interest expense. witnessed distribution challenges, particularly to the Guinness recorded significant net foreign exchange northern region of the country, resulting in lower losses between FY16 and FY18, following the sharp earnings from this region. As of 3Q FY20, revenue again Naira devaluation during the period. This rebounded to declined by an annualised 2.6%, and is expected to a net gain in FY19 supported by the relative stability remain lower for the full year FY20 given the within the foreign exchange market during the period. restrictions on social activity in the wake of the COVID- Foreign exchange risk has since heighted, as evidenced 19 crisis. by the loss as of 3Q FY20, and is expected to exacerbate Table 5: Income FY17 FY18 FY19 3Q FY20 for the full year position to June 2020. Statement (N'm) Revenue 125,920 142,976 131,498 96,019 Except for FY16, the Company has remained profitable Gross Profit 48,315 48,625 40,129 30,803 EBITDA 18,529 22,193 18,890 13,190 over the review period, albeit with significant Depr. and Amort. (8,994) (9,239) (10,094) (8,158) variability. While COVID-19 is likely to depress Op. Profit 9,536 12,955 8,796 5,032 profitability in the short to medium term, Guinness Net interest exp. (6,039) (2,124) (2,005) (1,944) remains one of the leading players in the market and Other op. inc./(exp.) 516 286 26 87 benefits from operational and strategic support from its Net forex gain/(loss) (1,351) (1,174) 286 (1,169) NPBT 2,662 9,943 7,104 2,006 parent company.

Key ratios (%): Revenue growth 23.5 13.5 (8.0) (2.6) Cash flow Gross Margin 38.4 34.0 30.5 32.1 Movements in cash generated by operations has largely EBITDA Margin 14.7 15.5 14.4 13.7 mirrored EBITDA, rising to N23.2bn in FY18 and Op. Margin 7.6 9.1 6.7 5.2 thereafter decreasing to N19.8bnbn in FY19. Net Int. Cover (x) 1.6 6.1 4.4 2.6 Guinness FS. The fluctuation in working capital has been driven primarily by movement in inventories, trade and other

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payables. The movement in trade and other payables are Funding profile mainly due to non-trade payables, including the In line with the capital intensive nature of Guinness’s outstanding balance for capex. Other driver include business, PPE has averaged about 65% of total assets. amount due to related parties (i.e. Diageo and Diageo These assets have primarily been funded through equity, group entities) following charges for technical support, whilst the high working capital requirements have as well as raw material purchases made on behalf of largely been covered by debt instruments and payables. Guinness due to the difficulties in accessing foreign currency in Nigeria. The significant decline in other GCR’s methodology focuses on tangible equity and payables and accruals at FY18 relates to part settlement asset values by excluding the intangible assets. of the outstanding amount due to related party. Following the distribution rights granted by Diageo in FY16, intangible assets rose to N1.7bn, and has since Table 6: Movement in FY17 FY18 FY19 3Q FY20 working capital (N’m) declined steadily to N391.6m at 3Q FY20. Guinness’

Inventories (10,856) 3,728 (6,980) 136 financial position was significantly strengthened in Trade receivables 7,750 (2,311) (1,941) 2,395 FY18 through a N24.6bn rights issue and the conversion Trade payables 2,347 (485) 689 420 of N15.1bn in intergroup loans to equity. Total Operating WC (760) 931 (8,233) 2,951 Tables 7: Funding profile Other receivables and FY17 FY18 FY19 3Q FY20 (1,854) 2,439 (28) (640) (N'm) prepayments

Other payables and accruals 5,103 (11,320) 8,260 2,444 Short term debt 17,033 5,619 11,822 12,490 Total Non-operating WC 3,249 (8,881) 8,233 1,804 Bank overdraft 7,538 - 6,545 5,395 Related party loans 157 46 191 49 Movement in WC 2,489 (7,950) 0 4,755 Letters of credit loans 8,223 5,573 5,086 7,046 Guinness AFS. Finance lease liabilities 1,116 - - Guinness generally allows reasonable credit terms to Short term bank loan - - - - distributors/customers, with adequate control measures Long term debt 24,889.4 8,116 8,105 8,631 in place to enhance collections. As evidenced by the Related party loans 21,936 8,116 8,105 8,631 Letters of credit loans 2,020 - - - decline in trade receivables at 3Q FY20, Guinness is Finance lease liabilities 933 - - - now focusing on reducing impairment risk and Total Debt 41,923 13,735 19,927 21,121 achieving a clean debtors’ book post-COVID. The Cash (6,595) (7,451) (4,757) (5,972) Company utilises USD denominated and Naira-backed Net Debt 35,328 6,284 15,170 15,150 letters of credit to facilitate imports, with favourable Equity (net of intangible 41,579 86,588 88,419 86,701 payment terms from local and international suppliers. assets)

Given the relatively quick production and sale of EBITDA 18,529 22,193 18,890 13,190 products, trade facilities provides adequate scope for Key ratios (%): funding working capital cycle, under normal Total debt: equity 100.8 15.9 22.5 24.4 Net debt: equity 85.0 7.3 17.2 17.5 circumstances. The significantly higher inventory Total debt: EBITDA 226.3 61.9 105.5 120.1 holdings were driven by management decision to hedge Net debt: EBITDA 190.7 28.3 80.3 86.1 against an expected rise in the international prices of Cash: ST debt (x) 0.4 1.3 0.4 0.5 Source: Guinness FS. brewing barley and sorghum, as well as imported Diageo spirits brands. Guinness’s debt facilities largely comprise bank overdrafts, letters of credit and related party loans. The After accounting for interest and tax payment, Guinness bank overdraft and the import letters of credit are reported relatively moderate cash flow from operations sourced through six (6) Nigerian banks, and are mostly of N11.7bn in FY19. In line with its expansion strategy short term revolving facilities, with an unutilised potion and nature of business, Guinness has invested an of over N16bn at 3Q FY20. The related party loan is a average of N12bn in capex costs in the last five years. five year USD denominated loan granted by Diageo to Much of this has related to plant and machineries, as Guinness in May 2016 for settling trade and other well as returnable packaging materials, which are currency obligations. The loan has a maximum critical to driving business volumes. Notwithstanding drawdown limit of USD95m, with an interest rate of 3– high capex, Guinness has paid dividend in all years month LIBOR plus 475bps, and is renewable after every under review. Management usually proposes dividend five year term as may be agreed by both parties. As of payment based on prevailing financial results, market 3Q FY20, the outstanding loan balance registered at conditions and capex requirements. During FY18, the USD22.5m, and the unutilised portion of the loan stood Company successfully completed a rights issue, at USD23.1m. supporting its funding structure and flexibility during the period. Additional facilities were obtained through Debt rose steadily from N20.7bn in FY15 to a review bank loans and overdraft to support operations whenever period high of N41.9bn at FY17, driven by the related cash flow was insufficient to meet capital/operating party loan from Diageo. Gross debt reduced to just costs. N13.7bn at FY18, following the related party loan conversion and part settlement of the bank loans. Debt rose by N6.2bn at FY19, largely through bank overdraft, utilised to finance the rising working capital requirement Nigeria Corporate Analysis | Public Credit Rating Page 5

following the expansion at the Ogba brewery and the introduction of PET bottle products. As of 3Q FY20, debt again rose by N1.2bn utilised through letters of credit for working capital funding.

The Company’s gearing metrics have been relatively moderate over the years compared to other highly capital intensive businesses. The spike in debt at FY16 and FY17 saw net gearing rise above 80% and net debt to EBITDA over 190%, from a low of 31.4% and 56.4% at FY15. Since then a substantial portion of debt has been settled, with net debt to EBITDA at 86.1% at 3Q FY20, from a review period high of 285.2% at FY16. Similarly, net debt to equity registered below 18% in recent period, comparing favourably to its major peers.

Guinness plans to establish a Commercial Paper Issuance Programme during FY20 to refinance its maturing short term borrowings, as well as diversify sources of funding. The facility will largely be used for working capital going forward. Even when gross debt has been fairly elevated, Guinness has reported moderate gearing metrics, and net interest coverage has averaged 3.3x over the review period. The relatively short cash generation cycle supports strong liquidity and debt serviceability. This notwithstanding, the current economic headwinds are expected to adversely impact the Company’s sales volume and earnings, and this may translate to a decline in credit protection metrics in the short to medium term rating horizon.

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Guinness Nigeria Plc (Naira in millions except as noted) Statement of comprehensive income 2015 2016 2017 2018 2019 3Q 2020 – Year-end: 30 June

Revenue 118,495.9 101,973.0 125,919.8 142,975.8 131,498.4 96,018.5 EBITDA 26,408.4 12,949.8 18,529.4 22,193.4 18,890.2 13,190.0 Depreciation and amortisation (11,333.0) (8,923.5) (8,993.6) (9,238.7) (10,093.7) (8,158.2) Operating income 15,075.4 4,026.3 9,535.8 12,954.7 8,796.5 5,031.8 Net finance charges (4,709.3) (3,539.7) (6,038.5) (2,123.8) (2,004.6) (1,943.6) Other operating income/(expenses) 260.8 101.5 516.0 286.0 25.9 86.7 Net foreign exchange gain/(loss) 168.2 (2,935.4) (1,351.1) (1,173.7) 285.8 (1,169.0) Net profit before tax 10,795.1 (2,347.2) 2,662.1 9,943.2 7,103.6 2,005.8 Taxation charge (3,000.2) 331.4 (738.4) (3,225.6) (1,619.9) (644.0) Net profit after tax 7,794.9 (2,015.9) 1,923.7 6,717.6 5,483.7 1,361.8

Statement of cash flows

Cash generated by operations 22,890.9 9,210.7 19,650.1 23,153.3 19,805.2 10,945.8 Utilised to increase working capital 11,168.7 (8,723.3) 2,489.4 (7,950.4) 0.3 4,755.5 Net finance charges (4,489.3) (3,363.5) (7,184.2) (2,336.8) (1,642.8) (2,044.0) Taxation paid (1,520.6) (1,807.5) (4,094.0) (4,613.2) (6,399.4) (1,301.3) Cash flow from operations 28,049.7 (4,683.6) 10,861.3 8,252.9 11,763.3 12,356.0 Maintenance capex‡ (9,193.0) (8,503.6) (8,438.2) (9,238.7) (10,093.7) (8,158.2) Discretionary cash flow from operations 18,856.7 (13,187.2) 2,423.1 (985.8) 1,669.6 4,197.8 Dividends paid (4,754.8) (2,243.9) (706.6) (963.8) (4,030.3) (3,329.4) Retained cash flow 14,101.8 (15,431.2) 1,716.6 (1,949.6) (2,360.8) 868.4 Net expansionary capex 0.0 0.0 0.0 (7,722.0) (6,503.5) (300.0) Intangible assets (35.7) (1,037.9) 0.0 0.0 0.0 0.0 Proceeds on sale of assets/investments 73.3 84.7 391.1 25.9 57.3 8.6 Shares issue 0.0 0.0 0.0 24,602.3 0.0 0.0 Cash movement: (increase)/decrease 486.0 (39.9) (3,782.7) (789.8) 2,607.0 (1,215.3) Borrowings: increase/(decrease) (14,625.4) 16,424.2 1,674.9 (14,166.9) 6,199.9 638.3 Net increase/(decrease) in debt (14,139.4) 16,384.3 (2,107.7) (14,956.7) 8,807.0 (577.0)

Statement of financial position

Ordinary shareholders interest 47,398.5 39,951.8 41,578.6 86,588.0 88,419.4 86,701.3 Outside shareholders interest 0.0 0.0 0.0 0.0 0.0 0.0 Total shareholders' interest* 47,398.5 39,951.8 41,578.6 86,588.0 88,419.4 86,701.3 Short term debt 8,439.3 25,133.4 17,033.4 5,618.5 11,822.0 12,489.9 Long term debt 12,250.8 14,034.5 24,889.4 8,116.4 8,104.6 8,631.5 Total interest-bearing debt 20,690.1 39,168.0 41,922.8 13,734.9 19,926.6 21,121.4 Interest-free liabilities 53,215.2 56,163.9 61,172.4 51,931.9 51,805.5 52,534.9 Total liabilities 121,303.7 135,283.6 144,673.8 152,254.8 160,151.6 160,357.6 Property, plant and equipment 87,754.1 87,233.0 87,324.5 97,602.0 100,801.1 102,140.4 Other non-current assets 38.2 180.8 122.4 42.7 6.5 3.4 Cash and cash equivalent 5,804.6 2,229.2 6,594.5 7,451.1 4,756.6 5,971.9 Other current assets 27,706.9 45,640.6 50,632.3 47,159.0 54,587.5 52,242.0 Total assets* 121,303.7 135,283.6 144,673.8 152,254.8 160,151.6 160,357.6

Ratios

Cash flow: Operating cash flow : total debt (%) 135.6 neg 25.9 60.1 59.0 78.0 Discretionary cash flow : net debt (%) 126.7 neg 6.9 neg 11.0 36.9 Profitability: Revenue growth (%) 8.5 (13.9) 23.5 13.5 (8.0) (2.6) Gross margin (%) 46.4 41.0 38.4 34.0 30.5 32.1 EBITDA : revenues (%) 22.3 12.7 14.7 15.5 14.4 13.7 Operating profit margin (%) 12.7 3.9 7.6 9.1 6.7 5.2 Coverage: Operating income : gross interest (x) 2.9 1.0 1.5 5.1 3.9 2.4 Operating income : net interest (x) 3.2 1.1 1.6 6.1 4.4 2.6 Capitalisation: Net debt: equity (%) 31.4 92.5 85.0 7.3 17.2 17.5 Total debt: equity (%) 43.7 98.0 100.8 15.9 22.5 24.4 Net debt: EBITDA (%) 56.4 285.2 190.7 28.3 80.3 86.1 Total debt: EBITDA (%) 78.3 302.5 226.3 61.9 105.5 120.1 ‡Depreciation used as a proxy for maintenance of capex expenditure. *Net of intangible assets.

Nigeria Corporate Analysis | Public Credit Rating Page 7

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Nigeria Corporate Analysis | Public Credit Rating Page 8