Nigerian Breweries Plc

2020 Final Corporate Rating Review Report

2019 Corporate Rating Review Report

Nigerian Breweries Plc Rating Assigned: This is a company that possesses very strong financial condition and very strong Aa- capacity to meet local currency obligations as and when they fall due.

Outlook: Stable RATING RATIONALE Issue Date: 19 August 2020 • Agusto & Co. hereby affirms the “Aa-“ rating assigned to Nigerian Breweries Plc Expiry Date: 30 June 2021 (“Nigerian Breweries”, “NB Plc” or “the Company”). The assigned rating reflects

Previous Rating: Aa- our opinion on the Company’s very strong financial condition evidenced by good cash flow, low leverage, adequate working capital, satisfactory profitability, stable and experienced management team as well as strong support from the parent Industry: Brewery company – Heineken N.V Group. However, growing competition in the Nigerian Brewery Industry, unfavourable regulatory stance, weak consumer purchasing power and uncertainty of the economic impact of COVID-19 pandemic remains a Outline Page Rationale 1 challenge for key operators in the Brewery Industry in the short to medium term. Company Profile 4 Financial Condition 7 • Nigerian Breweries Plc is a subsidiary of Heineken N.V of Netherlands Ownership, Mgt & Staff 12 Outlook 14 (“Heineken” or “the Group”) – one of the world’s leading manufacturers of beers Financial Summary 15 and ciders. Heineken operates in over 190 countries and has a rich portfolio of Rating Definition 19 over 300 global brands across alcoholic and non-alcoholic beverage categories with consolidated beer volume sales of 241.4 million hectolitres in the financial

year ended 31 December 2019. Heineken N.V Group has credit ratings from two Analysts: international rating agencies - Moody’s (“Baa1”) and S&P (“BBB+”). Ikechukwu Iheagwam [email protected] • Despite the challenging macroeconomic environment and increasing competition Isaac Babatunde in the Industry, NB Plc’s profitability metrics in the financial year ended 31 [email protected] December 2019 (FYE 2019) remained satisfactory with an operating profit margin

of 10.6%, return on assets of 8.3% and return on equity of 14%. Subsequent to Agusto & Co. Limited UBA House (5th Floor) FYE 2019, NB has continued to maintain market leadership and sustained 57, Marina operational efficiencies in the first quarter of 2020, thus resulting in a marginal Lagos improvement in performance. Nigeria • In FYE 2019, the Company reported an operating cash flow (OCF) of ₦45 billion, www.agusto.com which was sufficient to cover returns to providers of finance and adequate to fund

other short-term obligations including the current portion of long-term loans due during the year under review. NB’s OCF to sales ratio of 14% in 2019 and three- year (2017 – 2019) average of 16% are in line with our expectations and better than peers in the Brewery Industry in Nigeria.

• Nigerian Breweries has continued to maintain a low leverage position, mainly supported by its strong cash-generating capacity, good track and credit history as well as its optimal funding mix of equity (44%), spontaneous financing (42%) and interest-bearing liabilities (14%). As a result, the Company’s interest coverage

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Nigerian Breweries Plc ratio of 5.4 times and interest expense to sales ratio of 2.6% for FYE 2019 remained within our expectations and compare better than its peers.

• Akin to the Industry norm which reflects the capital-intensive nature, NB Plc has consistently posted short term financing surpluses and long-term financing needs. Nevertheless, the Company’s short-term financing surpluses have been adequate year on year to cover the long-term financing needs, thus resulting in overall working capital surpluses over the last five years.

• Going forward, Nigerian Breweries’ strategic growth plan is hinged principally on five building blocks, which it considers essential for sustained growth amidst the macroeconomic headwinds, increasing competition and uncertainties posed by the COVID-19 pandemic. Thus, Agusto & Co. expects NB to continue to maintain its market and cost leadership by volume growth across business segments, improve operational efficiencies, optimize working assets level, sustain favourable trade terms with suppliers and customers and leverage the support of the parent company. Also, cash flow is expected to remain strong occasioned by an optimal operating cash cycle, while leverage is poised to remain within acceptable limits, strongly supported by the Company’s good credit history and access to low-cost funds. Notwithstanding, NB’s profitability will be pressured in the short term due to the attendant impact of the COVID-19 pandemic. However, should the pandemic moderate in the near term, we expect a marked improvement in the overall performance in the medium term as the Company’s business fundamentals remain strong and sustainable.

• Overall, we believe that Nigeria’s growing population, favourable demographics, low beer consumption per capita as well as Nigeria Breweries’ strategic initiatives on market leadership, cost efficiencies, the route to market strategies and diversified product offerings portends opportunities for growth in the medium term, despite the uncertainty of the impact of Covid-19 on the general outlook on the economy.

• Based on the aforementioned and strong parental support from Heineken N.V Group demonstrated over the years through technical and management support, product innovation and human capital development, Agusto & Co. attaches a stable outlook to Nigerian Breweries Plc.

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Nigerian Breweries Plc Figure 1: SWOT Analysis

Strengths

• Part of a strong global player - Heineken N.V Group of Netherlands • Dominant market position - accounting for about 60% of Industry market share • Diversified product offering • Strong financial condition • Qualified, stable and experienced management team

Weakness

• Declining margins

Opportunities

• Low beer consumption per capita of 11.8 litres in Nigeria, relative to other markets in the World • Favourable demography supporting consumption of alcoholic and non-alcoholic drinks • Large market with a population growth of 3% pa.

Threats

• Heightened competition across all segments in the Brewery Industry • Poor infrastructure and attendant high cost on operations • Security challenges prevalent in some parts of the Country • Tough regulatory environment • Attendant impact of COVID-19 on consumption patterns • Low consumer spending power

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Nigerian Breweries Plc PROFILE OF NIGERIAN BREWERIES PLC Overview & Background Nigerian Breweries Plc (“Nigerian Breweries”, “NB Plc”, “NB” or “the Company”), a subsidiary of the Heineken N.V. Group1, is the largest brewing company in Nigeria in terms of asset size and market share. NB Plc was incorporated in 1946 as a limited liability company and produced the first bottle of its flagship brand, Star lager beer, at the Lagos Brewery in June 1949. The Company later became a public limited liability company and was listed on the Nigerian Stock Exchange (NSE) in 1973.

In 2011, the Company acquired majority equity interests in two companies - Sona Systems Associates Business Management Limited (“Sona Systems”) with two breweries in Ota, Ogun State and Kudenda, Kaduna State, and Life Breweries Company Limited (“Life Breweries”) with a brewery in Onitsha. In 2014, Nigerian Breweries Plc merged with Consolidated Breweries Plc and as part of the merger acquired a majority equity interest (89.3%) in Benue Bottling Company Limited (BBCL). BBCL is an entity with no business activities that hold land, buildings, and some idle production assets, which have been fully impaired. In 2019, the Company incorporated 234 Stores Limited as a wholly-owned subsidiary to explore opportunities to deepen its route-to-market strategy.

Nigerian Breweries has grown both organically and inorganically to become the leading brewing company in Nigeria, controlling about 60% of the lager market in the country as at end of December 2019. As at 30 May 2020, NB was one of the most capitalised stock on the NSE with a market capitalisation of circa ₦483.8 billion. Other major players in the Nigerian Brewery Industry are Guinness Nigeria Plc (a subsidiary of Diageo Group) and International Breweries Plc (part of the ABInBev Group).

Figure 2: Key Milestones in Nigeria Breweries Plc's History

2015 - 2019 1946-1949 • Focused on • UAC and Heineken innovation to signed contract for 2000 - 2007 strengthen current incorporation of business and expand Nigerian Breweries • Nigerian Breweries opportunities into new Limited as a limited became a subsidiary of categories liability company Heineken • Incorporated 234 • First bottle of Star • The Company started Stores Limited to Lager Beer was producing some of its enhance route-to- produced (1949) flagship brands in cans market strategy

1957 - 1973 2011 -2014 • Nigerian Breweries • Nigerian Breweries Limited became acquired Sona Breweries, Nigeria Breweries Plc thus expanding portfolio to • First bottle of Gulder 11 brands was produced (1970) • Nigerian Breweries • Nigeria Breweries Plc merged with Consolidated was listed on the Breweries Plc thus Nigeria Stock expanding portfolio to 20 Exchange brands and SKUs to 60 and as part of the merger acquired 89.3% equity in Benue Bottling Company Limited

1 The Heineken N.V Group is one of the largest brewing company in the world by volume with operations across 190 countries

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Nigerian Breweries Plc

Ownership Structure & Board of Directors Composition

Heineken N.V Group of the Netherlands, through its wholly-owned subsidiaries - Heineken Brouwerijen B.V. (37.76%), Distilled Trading International B.V. (15.47%) and Heineken International B.V (2.72%), holds majority shareholding of 55.95% in Nigerian Breweries, while private individuals and other institutional investors hold 44.05%. As at 31 December 2019, only Heineken N.V. Group and Stanbic Nominees Nigeria Limited (13.14%) held more than 5% equity stake in the Company. NB Plc holds an equity interest in two subsidiaries - Benue Bottling Company Limited (89.3%) and 234 Stores Limited (100%).

As at 31 December 2019, the Company had an eleven-member Board of Directors comprising nine non- executive directors and two executive directors. The Chairman of the Board of Directors is Chief Kolawole B. Jamodu (CFR), while Mr Jordi Borrut Bel is the Managing Director/CEO.

In the financial year ended 31 December 2019, Mrs. Adeyinka O. Aroyewun and Mr. Oluseyi T. Bickersteth joined the Board of Directors as independent non-executive director and non-executive director respectively. The Nigerian Breweries Plc’s Board of Directors operates through the following committees, namely Governance Committee; Audit Committee; and Risk Management and Ethics Committee. In FYE 2019, the Board of Directors met 5 times, while each of the Board Committees met at least 3 times within the year under review. Table 1: Board of Directors as at 31 December 2019

Chief Kolawole B. Jamodu Chairman Mr Jordi Borrut Bel Managing Director/CEO Mr Rob Kleinjan Finance Director Mr Atedo N. Peterside2 Non-Executive Director Mr Sijbe Hiemstra Non-Executive Director Mr Roland Pirmez Non-Executive Director Mr Oluseyi T. Bickersteth Non-Executive Director Mr Steven L.M. Siemer Non-Executive Director Mrs Ndidi O. Nwuneli Non-Executive Director (Independent) Mrs Ifueko M Omoigui-Okauru Non-Executive Director (Independent) Mrs Adeyinka O. Aroyewun Non-Executive Director (Independent) Source: Nigerian Breweries Plc 2019 Annual Report

As at 31 December 2019, the Governance Committee was chaired by Mr Atedo Peterside and supported by two other non-executive directors. Mr Roland Pirmez, a non-executive director, leads the Risk Management and Ethics Committee alongside two non-executive directors. The Audit Committee comprises six members – three Shareholders’ representatives and three Directors’ representatives. Chief. Timothy A. Adesiyan (Shareholders representative) is the Chairman of NB’s Board Audit Committee.

2 Mr. Atedo Peterside resigned from the Board of Directors in April 2020 to pursue other personal interest.

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Nigerian Breweries Plc Operating Structure

Nigerian Breweries has nine breweries, two malting plants, two distribution centres and twenty sales depot spread across the Country. The Company’s route to market consists of an extensive network of key distributors, wholesalers, bulk breakers and retail stores covering over 830,000 retail touchpoints across the Country. NB continues to offer robust marketing campaigns through traditional advertising, entertainment, music and sports to ensure that its products remain top of the mind for its consumers. NB Plc is strategic to the Heineken N.V Group within the Middle East and Africa region.

The Company’s product portfolio consists of 19 brands in the Nigerian Market, which cut across the lager, stout, malt, ready-to-drink, carbonated soft drinks and energy drinks segments. NB has a range of household brands which cater for the needs of different segments (premium, mainstream and value) of the market including Heineken, Star, Gulder, “33” Export lager beer, Goldberg, Legend Extra Stout, Maltina, Amstel Malta, Hi-malt, Strong Bow, Star Radler and Star Lite among others. The Company exports its products to other markets including the United Kingdom, the Netherlands, United States of America, Canada, some parts of Africa, the Middle East and Asia.

In the year under review, the Company launched a series of new products and packaging concepts including Tiger Beer, the Legend 33cl bottle, as well as the relaunch of Goldberg. In addition, NB launched the new “Sleek Can” packaging concept for some of its brands, making it the pioneer in the beer industry in Nigeria to produce sleek cans. Subsequent to FYE 2019, the Company launched the Climax 50cl PET, Star Lite 45cl bottle and relaunched Life Lager.

Other Information As at 31 December 2019, Nigerian Breweries’ total assets stood at ₦382.5 billion (2018: ₦388.7 billion), while total shareholders’ fund increased marginally to ₦167.5 billion (2018: ₦166.6 billion). In the financial year ended 31 December 2019, the Company reported net revenue (turnover less excise duties) of ₦323 billion and recorded a profit after tax of ₦16.1 billion (FYE 2018: ₦19.4 billion). In the period under review, NB’s average number of employees rose to 3,102 persons from 2,983 persons in the previous year.

As at 31 December 2019, NB Plc’s contingent liabilities in respect of staff loans, which is backed by the employees’ gratuity, amounted to ₦4.02 billion (2018: ₦3.7 billion). NB’s management believes that no outflow of resources will be required to settle these obligations. Furthermore, the Company had contingent liabilities in respect of guarantees provided to the Nigerian Customs in respect of customs duties amounting to ₦4.1 billion (2018: ₦3.6 billion) and guarantees provided to banks on behalf of the Company for Bank of Industry loans of ₦3.3 billion (2018: Nil). These represent the maximum liquidity exposure on the guarantees. In the opinion of the Directors and based on independent legal advice, these liabilities are not likely to be material, however, the claims assessed as the probable risk of loss with an estimated amount of ₦1.4 billion has been fully provided in the 2019 financial statements.

Table 2: Background Information as at 31 December 2019

Authorized Share Capital: ₦5 billion Paid-up Capital: ₦3.99 billion Shareholders’ Funds: ₦167.5 billion Registered Office: Iganmu House, 1 Abebe Village Road, Iganmu, Lagos Principal Business: Brewing Auditors: Deloitte & Touche Source: Nigerian Breweries Plc 2019 Annual Report

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Nigerian Breweries Plc FINANCIAL CONDITION

ANALYSTS’ COMMENTS PROFITABILITY ANALYSIS Nigerian Breweries Plc’s principal activities in the year under review remained brewing, marketing and selling of lager, stout, non-alcoholic malt drinks and soft drinks. Nigeria remains the Company’s primary geographical location as over 99% of the Company’s sales in FYE 2019 was made in Nigeria. In continuation of the excise duty regime which started in June 2018, NB Plc, similar to other key operators in the Brewery Industry, could not fully transfer the additional cost burden arising from the increment in the excise duty rates (₦30.00 per litre for beer products in 2018 and ₦35.00 per litre for 2019 & 2020) to the customers in the year under review due to the weak consumer purchasing power and increasing competition in the Industry.

In the financial year ended 31 December 2019 (FYE 2019), Nigerian Breweries Plc recorded a net revenue (total revenue less excise duty charges) of ₦323 billion, which was just slightly below the 2018 topline performance of ₦324.3 billion, despite the overwhelming macroeconomic headwinds. Agusto & Co. notes positively the Company’s elasticity to grow volumes across the different brands to compensate for the inability to fully transfer the excise duty cost to the consumers as well as NB’s sustained market leadership amidst increasing competition in the Industry and challenging macroeconomic environment, due to its well- diversified product portfolio, efficient route-to-market strategies and national breadth.

For the first time in three years, NB Plc’s cost of sales trended south both in absolute terms by 3%, and as a percentage of net revenue to 59.4% (FYE 2018: 61%), thus leading to a better gross profit margin at 40.6% in 2019 (FYE 2018: 39.1%). We allude this positive trend to the Company’s ongoing cost leadership strategy to substitute a variety of imported raw materials and consumables, with locally manufactured components, in a bid to reduce potential foreign exchange impact on the cost of raw materials.

Despite the internal cost optimization and operational efficiencies gained following the implementation of the cost leadership strategy across different business units, Nigerian Breweries’ operating expenses remained elevated at 30% of net revenue – the highest in the last five years. We attribute this persistent rise in operating cost mainly to the difficult operating environment in Nigeria and higher inflationary pressures in 2019. Nonetheless, we posit that this challenge will continue in the short to medium term alongside the yet to be determined impact of COVID-19 on businesses and households, hence key players need to creatively optimize cost at all levels, develop competitive solutions around the route to market (RTM) strategies and optimize workforce to curtail rising operating expenses. In FYE 2019, NB posted a lower operating profit margin (OPM) of 10.6% (2018: 11%), though higher than its peers – Guinness OPM of 6.5% for FYE June 2019 and International Breweries Plc, which reported a loss at FYE 2019.

In 2019, the Company’s other income arising mainly from the sale of scrap and interest income on bank deposits, amounted to ₦1.2 billion, while other expenses comprising foreign exchange losses and unwinding of discount on employee benefits amounted to ₦2.5 billion, thus resulting in a net other expense of ₦1.3 billion. In the same period under review, NB Plc’s finance cost rose in absolute terms by 53% to ₦8.4 billion mainly due to the spike in interest expenses on loans and overdrafts. Nonetheless, finance cost to revenue ratio remained satisfactory at 2.6%, though slightly higher than that of Guinness at 2%. As a result, the Company reported a lower profit before tax to sales ratio of 7.2% in 2019 and profit after tax margin of 5%, compared to 9.1% and 6% respectively in the previous year.

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Nigerian Breweries Plc The Company recorded a pre-interest pre-tax return on assets (ROA) and a pre-tax return on equity (ROE) of 8.3% and 14% respectively in FYE 2019, which was lower than the previous year of 9% and 17.6% respectively. Whilst we note the downward trend over the last three years, Agusto & Co believes that NB’s ROA is still better than the Brewery Industry’s average of 6% and that of Guinness at 6%. Furthermore, we recognise that the Company’s ROE is at the same level with the average yield on FGN 364-day risk-free securities of 14% in 2019 and better than Guinness at 8%. Going forward, we expect NB to continue to maximize its dominant position in the industry to grow volumes and remain competitive in the short to medium term. Figure 3: OPM, ROA & ROE – (2017 – Q1’2020) The unaudited accounts of Nigerian Breweries 30% Plc for the three months ended 31 March 2020 26.1% (Q1’2020), showed a flat performance in net 25% revenue when compared to Q1’2019. In the same period, cost of sales to revenue ratio 19.2% 20% 17.6% improved marginally to 58%, while operating 15.9% expenses as a percentage of revenue worsened 14.0% 15% 13.0% 13.3% to 29% of revenue (Q1’2019: 25%), thus 11.1% 10.2% 10.6% resulting in a lower operating profit margin of 10% 8.3% 9.0% 13% and profit before tax margin of 10% when compared to Q1’2019 of 16% and 14% 5% respectively.

Agusto & Co. notes that the Q1’2020 financial 0% statements have been modestly impacted by the Q1'2020 2019 2018 2017 nationwide lockdown occasioned by the OPM ROA ROE Coronavirus pandemic, as most businesses had to shut down temporarily towards the end of Q1’2020 based on the Federal Government of Nigeria’s directive. With the lockdown being gradually eased in Q2’2020 and social distancing becoming the new normal, we expect disruptions to supply chains, existing business models and route to market strategies in the short to medium term. This will ultimately have implications on the performance of businesses in the near term, even though we cannot with certainty predict the extent of the financial impact on the Company at this time.

Overall, we expect Nigerian Breweries Plc’s profitability to remain satisfactory.

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Nigerian Breweries Plc CASH FLOW ANALYSIS Over the last three years, Agusto & Co. notes that the competition in the Nigerian Brewery Industry has intensified, as some key operators have begun offering extended credit period in a bid to gain market share. Nonetheless, Nigerian Breweries Plc has continued to maintain strict credit policies to manage credit risk exposure on an ongoing basis. Under NB’s credit policy, all customers requiring credit over a particular threshold are reviewed and specific limits set before credit sales are offered to qualifying customers. Alternatively, customers who do not meet the benchmark criteria can only transact with the Company on a prepayment or cash basis.

In the financial year ended 31 December 2019, NB Plc continued to enjoy favourable terms of trade with both customers and suppliers, as the average trade debtor days improved to 19 days from 25 days in the prior year, while trade creditor days declined to 68 days compared to 84 days in the prior year. We note that the improvement in the trade debtor days is mainly due to strict adherence to risk management policies on granting of credit and recoveries, while the reduction in trade creditor days is largely due to the ongoing local substitution3 of raw materials and consumables, which will help reduce impact of foreign exchange volatility on cost of sales.

During the financial year ended 31 December 2019, Nigerian Breweries Plc recorded an operating cash flow (OCF) of ₦45 billion, up by 11% from the prior year mainly due to significant inflow of cash from outstanding trade debtors in the year under review. Furthermore, the Company’s OCF was sufficient to cover returns to providers of finance (RTPOF) of ₦29.2 billion (comprising dividend, 71% and interest payment, 29%) and adequate to fund other short-term obligations including current portion of long term loans due during the year under review.

In FYE 2019, NB Plc’s OCF as a percentage of sales inched up marginally to 14%, while the three-year (2017 – 2019) average of 16% is in line with our benchmarks. Furthermore, NB Plc’s FYE 2019 and three- year (2017 - 2019) average OCF as a percentage of returns to providers of financing of Figure25% 4: Operating Cash Flow to Sales Ratio (2017 - Q1'2020) 155% and 158% respectively are in line with our 22% expectations. 20%

15% In the three months ended 31 March 2020 14% 15% 13% (unaudited), Nigerian Breweries Plc reported an operating cash flow of ₦12.2 billion, which was 10% sufficient to cover returns to providers of finance in the period. Also, the Company’s OCF to sales 5% ratio of 15% in Q1’2020 is considered to be good and reflects management’s concerted efforts at converting outstanding trade debts into cash, as 0% Q1'2020 2019 2018 2017 we anticipate trade debt restructuring and potential defaults by customers in sectors severely hit by the pandemic.

In our opinion, NB Plc’s overall cash flow position is good and we expect this to continue on account of its favourable terms of trade with customers and suppliers as well as the strict adherence to managing trading risk exposure during this uncertain period.

3 In FYE 2019, NB Plc’s management noted that about 85% of production inputs comprising raw materials, packaging and services were sourced locally

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Nigerian Breweries Plc FINANCING STRUCTURE AND ADEQUACY OF WORKING CAPITAL ANALYSIS

As at 31 December 2019, Nigerian Breweries Plc’s working assets stood at ₦55.8 billion (FYE 2018: ₦63.4 billion) mainly comprising stocks (51%), trade debtors (29%) and other debtors & prepayments (7%). Traditionally, the Company optimizes its working asset position by holding optimum stock levels and extending credit sales to only pre-qualified customers. Although this strategy remains suitable for its business model, we note positively that NB held an unusually larger inventory size as at end of Q1’2020 mainly to provide a buffer for continuous operations due to disruptions in supply chains globally and locally as well as to hedge any potential volatility in foreign exchange and commodity prices in the international market.

As at FYE 2019, the Company’s non-interest-bearing liabilities (i.e spontaneous financing) declined by 11% to ₦159.2 billion from the prior year, due to a marked reduction in trade creditors due to the initiatives on local sourcing of raw materials and consumables during the year. Similar to the prior year, the main drivers of NB’s spontaneous financing in FYE 2019 were trade creditors for raw materials and consumables (22%), advance deposits from customers for returnable packaging materials (20%), other creditors & accruals (14%) and deferred taxation (15%). In 2019, the Company’s spontaneous financing was sufficient to cover working assets, leaving a short-term financing surplus (STFS) of ₦103 billion. Agusto & Co. notes positively that NB Plc has traditionally recorded short-term financing surpluses over the years due to its strategic operating cycle and business model, where payments are generally received in advance from customers and suppliers offer generous trade credits. We expect this trend to continue into the foreseeable future.

As at 31 December 2019, NB Plc’s long-term assets stood at ₦320.3 billion (2018: ₦310.5 billion), while long term funds, comprising equity (75%) and long-term borrowing (25%) amounted to ₦223.2 billion (2018: ₦207.7 billion). Therefore, the Company’s long-term funds were insufficient to cover the long-term assets, thus leaving a long-term financing need (LTFN) of ₦97 billion. Similar to the last three years, the Company’s short-term financing surplus was sufficient to cover the long-term financing need in 2019, resulting in an overall working capital surplus of ₦6.4 billion for FYE 2019 (2018: ₦13.3 billion). Figure 5: STFS, LTFN & WCS (N’Billion) – (2017 – Q1’2020) Moving forward, the Company plans to continue to optimize its long term committed facilities from banks to ensure sufficient long-term funding and 140 130.2 utilize short term borrowings such as commercial 116.1 120 114.8 papers and overdrafts to benefit from cheaper 103.3 102.8 97 financing costs to support its financing 100 requirements. In addition, NB’s management 76.5 80 believes that this strategy will help manage working capital requirements without hampering 60 51.9 the financing headroom. 40 24.5 13.3 15.4 In our view, Nigerian Breweries has adequate 20 6.4 working capital for the business structure it 0 operates. Q1'2020 2019 2018 2017 STFS LTFN WCS

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Nigerian Breweries Plc LEVERAGE ANALYSIS As at 31 December 2019, Nigerian Breweries Plc’s total liabilities stood at ₦214.9 billion, down by 3% from the prior year. The main components were non-interest-bearing liabilities (74%) and interest-bearing liabilities (26%). The Company’s non-interest-bearing liabilities (NIBL) were mainly made up of trade creditors (22%), advance deposits for returnable packaging materials (20%), other creditors & accrual (14%), deferred taxation (15%) and amounts due to related parties (9%), while the interest-bearing liabilities (IBL) component of ₦55.7 billion (up by 31% from the prior year), comprised the outstanding portion of NB’s unsecured revolving credit facilities as well as outstanding amounts on the Bank of Industry4 loans.

NB Plc has revolving credit facilities with five Nigerian banks totaling ₦66 billion, which was obtained in 2016 for a tenor of five years to support NB’s working capital requirement on a need basis. Subsequent to FYE 2019, the Company had drawn ₦25.5 billion from these facilities, leaving the undrawn portion of ₦40.5 billion, which serves as a buffer to meet any financing requirement that may arise. NB also has two credit facilities from the Bank of Industry for capital expenditure and working capital requirement, which were obtained in 2018.

Agusto & Co. notes positively that Nigerian Breweries’ total assets of ₦382.5 billion as at FYE 2019 was funded by total liabilities (56%) and equity (44%), thus depicting a good equity cushion. Worthy of note is that the bulk of NB’s total liabilities as at the same date was spontaneous financing (74%), hence attracted no finance cost. Overall, we believe that NB’s financing model is sustainable and will ultimately result in low finance cost given that the business is funded largely with shareholders’ fund and non-interest-bearing liabilities.

On account of the above mentioned, NB Plc’s interest expenses to sales ratio remained within our expectation at 2.6% in FYE 2019, while the interest coverage ratio of 5.4 times surpassed our benchmark of 3 times. As at the same date, the Company’s IBL to equity ratio of 29% as well as net liabilities (total liabilities less cash) as a percentage of average total assets of 56% were both in line with our expectations.

As at the three months ended 31 March 2020 (unaudited), the Company’s total liabilities spiked by 20% to ₦257.7 billion, with NIBL accounting for 62% and IBL 38%. The increase in Nigerian Breweries’ total liabilities is mainly credited to the issuance of commercial papers5 in Q1’2020. Agusto & Co. notes that NB’s key leverage metrics (despite the rise in borrowings) for the period ended Q1’2020 such as interest expense to sales ratio at 3.2% and interest coverage ratio at 4.6 times, were still in line with our Industry benchmarks of 5% and 3 times respectively. Also, the Company’s IBL to equity ratio at 43% and net liabilities as a percentage of average total assets of 60% as at Q1’2020 were still in line with our expectations.

In our opinion, the Company has low leverage, mainly supported by its good cash-generating capacity as well as its robust financing model.

4 The two credit facilities obtained from Bank of Industry in 2018 – ₦10 billion 7-year term loan and ₦5 billion 3.5-year loan for capital expenditure and working capital requirement respectively – were guaranteed by two deposit money banks. 5 As at 31 May 2020, the Company had 4 commercial papers in issue (Series 5, 6, 7 & 8) with total discounted value of ₦86.8 billion and latest redemption date of 8 January 2021.

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Nigerian Breweries Plc OWNERSHIP, MANAGEMENT & STAFF ANALYSIS The Company’s authorized share capital of ₦5 billion divided into 10 billion ordinary shares at 50 kobo each was unchanged over the last three years. Similarly, NB Plc’s issued and fully paid-up share capital remained at ₦3,998,451,000 split into 7,996,902,051 ordinary shares of 50 kobo each over the three years ended 31 December 2019.

As at 31 December 2019, Heineken N.V Group held the largest equity stake of 55.95% in Nigerian Breweries through its wholly-owned subsidiaries - Heineken Brouwerijen B.V (37.76%), Distilled Trading International B.V (15.47%) and Heineken International B.V (2.72%). Stanbic Nominees Nigeria Limited (13.14%) and other individuals & institutional investors (30.91%) held the remaining issued shares as at the same date. Agusto & Co. notes that the Company’s ownership structure is somewhat concentrated in Heineken N.V Group. However, we recognize that the parent company is one of the largest brewing companies in the world and among the most respected brands globally. Heineken N.V Group is a global company with an institutionalized framework for corporate governance practices, which its subsidiaries comply with.

Figure 6: Nigerian Breweries Plc Shareholding Structure as at 31 December 2019

• Heineken Brouwerijen B.V (37.76%) Stanbic Nominees Heineken N.V Others Investors • Distilled Trading Nigeria Limited Group (30.91%) International B.V. (15.47%) (13.14%) (55.95%) • Heineken International B.V (2.72%)

Benue Bottling Company Limited (89.3%) NIGERIAN BREWERIES PLC 234 Stores Limited (100%)

Source: Nigerian Breweries Plc 2019 audited accounts and management presentation

Nigerian Breweries Plc has an eleven-member Board of Directors, comprising nine non-executive directors (including three independent directors) and two executive directors. Chief Kolawole B. Jamodu, a foremost industrialist and chartered accountant, leads the Board of Directors as Chairman, while Mr Jordi Borrut Bel is the Managing Director/CEO.

The Company’s Board of Directors maintains three committees (Governance Committee; Audit Committee; and Risk Management and Ethics Committee), who provide supervisory functions to the management team. The Board of NB is drawn from diverse backgrounds with vast experience in board management. On 1 January 2019, Mrs. Adeyinka O. Aroyewun and Mr. Oluseyi T. Bickersteth joined the Board of Directors as independent non-executive director and non-executive director respectively.

The Company’s management team is composed of two executive directors and seven senior management personnel covering various segments of the business. Based on the operating structure, members of the management team report directly to the MD/CEO. In the year under review, there were no changes to the

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Nigerian Breweries Plc management team. Agusto & Co. notes positively that most of the members of NB’s management team have worked within the Group in various capacities both locally and internationally for more than a decade. In our opinion, the Company’s management team is stable, qualified and experienced.

NB Plc has a comprehensive training programme which allows staff across different functions the opportunity for cross-border training experience under the Heineken N.V Group. In 2019, twenty-four Nigerian employees were deployed to different Heineken operating companies across the world, while 2,328 employees participated in various training programmes both locally and internationally. In addition, Mrs Chidum Ayeni, the erstwhile Business Transformation Manager, was appointed Managing Director of Brarudi S.A. Burundi with effect from 1 April 2020. In the wake of the COVID-19 pandemic and attendant impact on business activities, the Company restated its commitment to ensuring job security for all its employees.

As at 31 December 2019, Nigerian Breweries total staff strength stood at 3,102 employees, split into the following functions, production (48.6%), commercial (27.3%), general administration (15.7%) and distribution (8.2%). In the same period under review, the Company’s average cost per employee amounted to ₦12.8 million, representing a 9% decline from the prior year, while operating profit per staff stood at ₦23.8 million (2018: ₦26.3 million). In our opinion, NB Plc’s staff productivity level is satisfactory, given that the operating profit per staff was adequate to cover the average cost per employee 1.85 times.

Management Team Mr Jordi Borrut Bel is the Managing Director/CEO of Nigerian Breweries Plc. He joined the Heineken N.V. Group in 1997 as a Sales Representative at Heineken Spain. He has held various commercial positions, first as Distribution Project Manager in Slovakia and thereafter as Brand Manager at Heineken France, followed by a Trade Marketing role at Group Commerce in Amsterdam. He returned to Heineken Spain first as Regional Sales Director, then On-Premise National Sales Director and subsequently On-Premise Sales and Distribution Director. Mr Borrut Bel was until he was appointed Managing Director/CEO, Nigerian Breweries Plc on 22 January 2018, the Managing Director of Brarudi SA, the Heineken Operating Company in Burundi.

Mr Rob Kleinjan is the Finance Director of Nigerian Breweries Plc. Before his appointment to the Board on 28 July 2018, he was the Finance Director of the Brau Union Group, Austria (a Heineken subsidiary) which consists of four operating companies (Brau Union Austria, Brau Union Export, Villacher Brewery and Ammersin). Mr Rob also served as General Manager Brau Union Export and Ammersin and Board Member of Villacher Brewery. He joined Heineken in 1996 as Controller and thereafter held senior management positions in finance, control and accounting functions in Heineken operating companies in the Netherlands, Poland, Germany, Belgium and Finland.

Table 3: Other members of Nigerian Breweries Plc’s management team

Mr Emmanuel Oriakhi Marketing Director Mr Martin Kochi Supply Chain Director Mrs Grace Omo-Lamai Human Resources Director Mr Uche Unigwe Sales Director Mrs Sade Morgan Corporate Affairs Director Mr Uaboi G. Agbebaku Company Secretary/Legal Director Source: Nigerian Breweries Plc 2019 annual report and management presentation

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Nigerian Breweries Plc OUTLOOK Over the last three years, the Nigerian Brewery Industry has evolved, with heightened competition, mainly due to the entry of a global player through acquisitions. Consequently, there has been an ongoing shift in product pricing regime, resulting in frequent price wars particularly in the beer segment, redesigning of product packaging, continuous route-to-market restrategizing, as well as expansion in the product portfolio of operators. During the period under review, intense competition amidst weak consumer spending coupled with the regulatory headwinds of higher excise duties imposed on alcoholic beverage muted growth in the Brewery Industry.

Nonetheless, Agusto & Co. retains its opinion that the Nigerian Brewery Industry has huge potential for growth despite the weakened macroeconomic environment, rising infrastructure deficits, protracted security challenges, increasing competition, weak consumer disposable income and attendant impact of Covid-19 pandemic on businesses and households’ consumption patterns and lifestyle changes. In our opinion, the Nigerian Brewery Industry’s outlook remains positive due to the good fundamentals such as low beer consumption per capita, rising urbanisation level, favourable demography supporting consumption of alcoholic and non-alcoholic drinks and increasing opportunities for exports to other West African countries on the back of the African Continental Free Trade Area Agreement and other bilateral trade relationships.

In our view, Nigerian Breweries Plc has continued to maintain its market leadership both in terms of sales volume and value and is well-positioned to benefit from potential growth in the Industry due to its well- diversified product portfolio, efficient route-to-market strategies, national spread and strong technical support from its parent company – Heineken N.V Group. Supporting our opinion above, the Company’s financial condition in the year ended 31 December 2019 and the three months ended 31 March 2020 (unaudited) remained strong buoyed by good cash flow position, low leverage, adequate working capital and satisfactory profitability level.

Going forward, NB Plc’s strategic growth plan is hinged principally on five building blocks (see figure 7), which the Company considers pivotal for sustained growth. Overall, we expect NB to continue to maintain its market leadership by deepening volume growth across segments, consolidate achievements in operational cost efficiencies, sustain favourable trade terms with suppliers and customers amid competition and benefit from the support of the parent company. Also, the Company’s cash flow is expected to remain strong strengthened by a good operating cash cycle, while leverage strongly supported by NB Plc’s good track and credit history as well as access to low-cost funds in the financial market, is tipped to remain in line with our expectation. In our opinion, NB’s profitability will be pressured in the short term due to the adverse impact of the COVID-19 pandemic on consumers’ disposable income and anticipated lifestyle changes. However, should the spread of the pandemic be curtailed in the short term, we expect a marked improvement in NB Plc’s overall performance as the business fundamentals remain strong and sustainable complemented by a well-experienced management team.

Based on the aforementioned, we have attached a stable outlook to the rating of Nigerian Breweries Plc.

Figure 7: Nigerian Breweries Plc’s Building blocks for sustained growth

Strong and Superior Route Strong Human Market & Cost Strong Brand Supportive to Market Capital Leadership Portfolio Parent Strategy Development Company

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Nigerian Breweries Plc FINANCIAL SUMMARY

STATEMENT OF FINANCIAL POSITION 31-Dec-19 31-Dec-18 31-Dec-17 ₦'000 ₦'000 ₦'000 ASSETS CASH in HAND AND BANK 6,358,606 1.7% 14,792,088 3.8% 15,865,776 4.1% MARKETABLE SECURITIES & TIME DEPOSITS CASH & EQUIVALENTS 6,358,606 1.7% 14,792,088 3.8% 15,865,776 4.1%

FX PURCHASED FOR IMPORTS 2,840,214 0.7% 2,474,279 0.6% 7,474,027 2.0% ADVANCE PAYMENTS AND DEPOSITS TO SUPPLIERS 2,596,478 0.7% 8,535,033 2.2% 3,802,857 1.0% STOCKS 28,579,021 7.5% 24,419,934 6.3% 36,988,387 9.7% TRADE DEBTORS 16,379,515 4.3% 21,874,589 5.6% 13,137,794 3.4% DUE FROM RELATED PARTIES 1,420,895 0.4% 536,213 0.1% 1,499,014 0.4% OTHER DEBTORS & PREPAYMENTS 4,013,723 1.0% 5,563,898 1.4% 2,983,332 0.8% TOTAL TRADING ASSETS 55,829,846 14.6% 63,403,946 16.3% 65,885,411 17.2%

INVESTMENT PROPERTIES - OTHER NON-CURRENT INVESTMENTS 929,625 0.2% 829,625 0.2% 829,625 0.2% PROPERTY, PLANT & EQUIPMENT 201,362,280 52.6% 203,317,850 52.3% 195,050,394 51.0% SPARE PARTS, RETURNABLE CONTAINERS, ETC 9,913,768 2.6% 8,086,890 2.1% 5,740,475 1.5% GOODWILL, INTANGIBLES & OTHER L T ASSETS 108,109,690 28.3% 98,335,917 25.3% 99,354,859 26.0% TOTAL LONG TERM ASSETS 320,315,363 83.7% 310,570,282 79.9% 300,975,353 78.6%

TOTAL ASSETS 382,503,815 100.0% 388,766,316 100.0% 382,726,540 100.0%

LIABILITIES & EQUITY SHORT TERM BORROWINGS - 1,469,810 0.4% 470,930 0.1% CURRENT PORTION OF LONG TERM BORROWINGS - LONG-TERM BORROWINGS 55,719,531 14.6% 41,127,565 10.6% 8,000,000 2.1% TOTAL INTEREST BEARING LIABILITIES (TIBL) 55,719,531 14.6% 42,597,375 11.0% 8,470,930 2.2%

TRADE CREDITORS 35,751,451 9.3% 45,389,551 11.7% 39,597,344 10.3% DUE TO RELATED PARTIES 13,875,161 3.6% 16,373,872 4.2% 35,883,080 9.4% ADVANCE PAYMENTS AND DEPOSITS FROM 31,607,177 8.3% 29,920,614 7.7% 29,930,949 7.8% CUSTOMERS OTHER CREDITORS AND ACCRUALS 22,863,061 6.0% 24,760,075 6.4% 23,234,670 6.1% TAXATION PAYABLE 12,775,488 3.3% 14,537,462 3.7% 19,553,190 5.1% DIVIDEND PAYABLE 5,742,085 1.5% 7,931,759 2.0% 8,028,742 2.1% DEFERRED TAXATION 23,171,027 6.1% 24,554,471 6.3% 26,666,864 7.0% OBLIGATIONS UNDER UNFUNDED PENSION SCHEMES 13,434,272 3.5% 16,056,953 4.1% 13,209,837 3.5% MINORITY INTEREST REDEEMABLE PREFERENCE SHARES TOTAL NON-INTEREST BEARING LIABILITIES 159,219,722 41.6% 179,524,757 46.2% 196,104,676 51.2% TOTAL LIABILITIES 214,939,253 56.2% 222,122,132 57.1% 204,575,606 53.5%

SHARE CAPITAL 3,998,451 1.0% 3,998,451 1.0% 3,998,451 1.0% SHARE PREMIUM 73,770,356 19.3% 73,770,356 19.0% 73,770,356 19.3% IRREDEEMABLE DEBENTURES REVALUATION SURPLUS - - - OTHER NON-DISTRIBUTABLE RESERVES 501,557 0.1% 750,534 0.2% 748,450 0.2% REVENUE RESERVE 89,294,198 23.3% 88,124,843 22.7% 99,633,677 26.0% SHAREHOLDERS' EQUITY 167,564,562 43.8% 166,644,184 42.9% 178,150,934 46.5%

TOTAL LIABILITIES & EQUITY 382,503,815 100.0% 388,766,316 100.0% 382,726,540 100.0%

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Nigerian Breweries Plc

STATEMENT OF COMPREHENSIVE INCOME 31-Dec-19 31-Dec-18 31-Dec-17 ₦'000 ₦'000 ₦'000 TURNOVER 323,002,120 100.0% 324,388,500 100.0% 344,527,216 100.0% COST OF SALES (191,756,513) -59.4% (197,484,694) -60.9% (201,034,636) -58.4%

GROSS PROFIT 131,245,607 40.6% 126,903,806 39.1% 143,492,580 41.6% OTHER OPERATING EXPENSES (96,996,221) -30.0% (90,832,372) -28.0% (88,606,137) -25.7%

OPERATING PROFIT 34,249,386 10.6% 36,071,434 11.1% 54,886,443 15.9% OTHER INCOME/(EXPENSES) (2,557,187) -0.8% (1,239,052) -0.4% (4,088,307) -1.2%

PROFIT BEFORE INTEREST & TAXATION 31,692,199 9.8% 34,832,382 10.7% 50,798,136 14.7% INTEREST EXPENSE (8,365,109) -2.6% (5,472,554) -1.7% (4,225,823) -1.2%

PROFIT BEFORE TAXATION 23,327,090 7.2% 29,359,828 9.1% 46,572,313 13.5% TAX (EXPENSE) BENEFIT (7,222,327) -2.2% (9,958,659) -3.1% (13,563,021) -3.9%

PROFIT AFTER TAXATION 16,104,763 5.0% 19,401,169 6.0% 33,009,292 9.6% NON-RECURRING ITEMS (NET OF TAX) 3,104,294 1.0% (1,473,076) -0.5% (1,449,678) -0.4% MINORITY INTERESTS IN GROUP PAT

PROFIT AFTER TAX & MINORITY INTERESTS 19,209,057 5.9% 17,928,093 5.5% 31,559,614 9.2% DIVIDEND (18,632,782) -5.8% (29,828,445) -9.2% (28,453,982) -8.3% PROFIT RETAINED FOR THE YEAR 576,275 0.2% (11,900,352) -3.7% 3,105,632 0.9% SCRIP ISSUES OTHER APPROPRIATIONS/ ADJUSTMENTS 593,080 391,518 208,263 PROFIT RETAINED B/FWD 88,124,843 99,633,677 96,319,782 PROFIT RETAINED C/FWD 89,294,198 88,124,843 99,633,677

ADDITIONAL INFORMATION 31-Dec-19 31-Dec-18 31-Dec-17

Staff costs (₦'000) 39,838,447 42,400,343 41,640,292 Average number of staff 3,102 2,983 3,328 Staff costs per employee (₦'000) 12,843 14,214 12,512 Staff costs/Turnover 12% 13% 12% Capital expenditure (₦'000) 37,620,365 38,090,416 37,339,667 Depreciation expense - current year (₦'000) 30,822,517 29,494,038 32,686,134 (Profit)/Loss on sale of assets (₦'000) - - -

Number of 50 kobo shares in issue at year end ('000) 7,996,902 7,996,902 7,996,902 Market value per share of 50 kobo (year end) 5,900 8,550 13,490 Market capitalisation (₦'000) 471,817,218 683,735,121 1,078,782,080 Market/Book value multiple 3 4 6

Average age of depreciable assets (years) 7 6 6 Sales at constant prices - base year 1985 (₦'000) 884,445 994,663 1,177,319

Auditors DELOITEE & DELOITEE & DELOITEE & TOUCHE TOUCHE TOUCHE Opinion CLEAN CLEAN CLEAN

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Nigerian Breweries Plc CASH FLOW STATEMENT FOR Y/E 31-Dec-19 31-Dec-18 31-Dec-17 =N='000 =N='000 =N='000 OPERATING ACTIVITIES Profit after tax 16,104,763 19,401,169 33,009,292 ADJUSTMENTS Interest expense 8,365,109 5,472,554 4,225,823 Minority interests in Group PAT - - - Depreciation 30,822,517 29,494,038 32,686,134 (Profit)/Loss on sale of assets - - - Other non-cash items 344,103 393,602 385,607 Potential operating cash flow 55,636,492 54,761,363 70,306,856 INCREASE/(DECREASE) IN SPONTANEOUS FINANCING: Trade creditors (9,638,100) 5,792,207 10,947,972 Due to related parties (2,498,711) (19,509,208) 3,258,189 Advance payments and deposits from customers 1,686,563 (10,335) (1,519,307) Other creditors & accruals (1,897,014) 1,525,405 3,638,605 Taxation payable (1,761,974) (5,015,728) 563,623 Deferred taxation (1,383,444) (2,112,393) (3,209,644) Obligations under unfunded pension schemes (2,622,681) 2,847,116 3,108,772 Minority interest - - - Cash from (used by) spontaneous financing (18,115,361) (16,482,936) 16,788,210 (INCREASE)/DECREASE IN WORKING ASSETS: FX purchased for imports (365,935) 4,999,748 955,021 Advance payments and deposits to suppliers 5,938,555 (4,732,176) 146,763 Stocks (4,159,087) 12,568,453 (12,203,145) Trade debtors 5,495,074 (8,736,795) (383,991) Due from related parties (884,682) 962,801 (456,286) Other debtors & prepayments 1,550,175 (2,580,566) (454,290) Cash from (used by) working assets 7,574,100 2,481,465 (12,395,928) CASH FROM (USED IN) OPERATING ACTIVITIES 45,095,231 40,759,892 74,699,138 RETURNS TO PROVIDERS OF FINANCING Interest paid (8,365,109) (5,472,554) (4,225,823) Dividend paid (20,822,456) (29,925,428) (33,101,278) CASH USED IN PROVIDING RETURNS ON FINANCING (29,187,565) (35,397,982) (37,327,101) OPERATING CASH FLOW AFTER PAYMENTS TO PROVIDERS OF FINANCING 15,907,666 5,361,910 37,372,037 NON-RECURRING ACTIVITIES Non-recurring items (net of tax) 3,104,294 (1,473,076) (1,449,678) CASH FROM (USED IN) NON-RECURRING ACTIVITIES 3,104,294 (1,473,076) (1,449,678) INVESTING ACTIVITIES Capital expenditure (37,620,365) (38,090,416) (37,339,667) Sale of assets 8,753,417 328,923 599,839 Purchase of other long term assets (net) (11,700,651) (1,327,473) Sale of other long term assets (net) - - 5,073,519 CASH FROM (USED IN) INVESTING ACTIVITIES (40,567,599) (39,088,966) (31,666,309) FINANCING ACTIVITIES Increase/(Decrease) in short term borrowings (1,469,810) 998,880 (399,681) Increase/(Decrease) in long term borrowings 14,591,966 33,127,565 (9,000,000) Proceeds of shares issued - - 8,854,153 CASH FROM (USED IN) FINANCING ACTIVITIES 13,122,156 34,126,445 (545,528)

CHANGE IN CASH INC/(DEC) (8,433,483) (1,073,687) 3,710,522 OPENING CASH & MARKETABLE SECURITIES 14,792,088 15,865,776 12,155,254 CLOSING CASH & MARKETABLE SECURITIES 6,358,605 14,792,089 15,865,776

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Nigerian Breweries Plc

STATEMENT OF CASHFLOW 31-Dec-19 31-Dec-18 31-Dec-17 ₦'000 ₦'000 ₦'000 Operating cash flow (OCF) 45,095,231 40,759,892 74,699,138 Less: Returns to providers of finance (29,187,565) (35,397,982) (37,327,101) OCF after returns to providers of finance 15,907,666 5,361,910 37,372,037 Non-recurring items 3,104,294 (1,473,076) (1,449,678) Free cash flow 19,011,960 3,888,834 35,922,359 Investing activities (40,567,599) (39,088,966) (31,666,309) Financing activities 13,122,156 34,126,445 (545,528) Change in cash (8,433,483) (1,073,687) 3,710,522

PROFITABILITY PBT as % of turnover 7% 9% 14% Return on equity 14% 17% 27% Real sales growth -11.1% -15.5% -4.8% Sales growth -0.4% -5.8% 9.8% ROA (pre-tax) 6.05% 7.61% 12.41% CASH FLOW Interest cover (times) 5.4 7.4 17.7 Principal payback (years) - - -

WORKING CAPITAL Working capital need (days) - - - Working capital deficiency (days) 12 - -

LEVERAGE Interest bearing debt to Equity 33% 26% 5% Total debt to Equity 128% 133% 115%

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Nigerian Breweries 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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