Nigerian Breweries vs Guiness Nigeria

Nigerian brewers Cash is king

Sector update Equity Research 19 March 2015

Beverages Nigeria

After conducting distribution and channel checks in Nigeria recently, we came away with a more cautious view on volume and pricing growth. With the worsening macro and expected tighter rate environment, we raise our WACC assumptions and compare Guinness Nigeria (GN) with Nigerian Breweries (NB) on their cash positions. As a result, NB is still our preferred play in Nigeria, but we downgrade our rating to HOLD (from Buy) and lower our TP to NGN138/share (from NGN162). We maintain our SELL rating on GN, but lower our TP to NGN99/share (from NGN103).

Worsening macro

Investors are familiar with Nigerias current problems, but with inflation edging upwards and another devaluation on the cards, we believe the operating environment will become even tougher in 2015. Yvonne Mhango, our SSA economist, forecasts core inflation of 13% with real wage growth moving further into negative territory. Beyond core inflation eating into consumers disposable income, the Nigeria Labour Congress (NLC) is now contemplating reducing the minimum wage as it believes the level is unsustainable with current oil prices.

3Ds: Devaluation, distribution and debt

This year, the lack of pricing power at the brewers will likely hit operating cash-flow, which we think will face pressure on the back of the devaluation. Furthermore, with subdued demand, the credit facilities that the brewers provide to their distributors could lead to a longer cash-conversion cycle. NBs negative cash-conversion cycle places it in a stronger position than GN. NB also has minimal debt vs GN whose borrowing has increased 3x in 1H FY15 vs FY14.

GN to cut dividends

We analyse the funding requirements in FY15 for both GN and NB and conclude that GN will have to cut its dividend pay-out ratio or come to the market to raise equity as it faces a funding gap of ~NGN14.3bn, whilst NB has excess cash and will be able to maintain its pay-out ratio, in our view.

Downgrading TPs, but still prefer NB

We downgrade NB to HOLD (from Buy) with a lower TP of NGN138/share (previously NGN162), and maintain our SELL rating on GN and lower our TP to NGN99/share (previously NGN103), on the back of higher WACC assumptions. We believe 2015 will be one of the toughest years for the consumer in Nigeria and only those companies with strong balance sheets and cash positions will be able to weather the storm. As a result, NB remains our preferred brewer in Nigeria.

Omair Ansari +234 (1) 448-5329 [email protected] Olaloye Oyawoye +234 (1) 448-5328 [email protected]

Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.

Summary sector ratings and target prices Nigerian Breweries Bloomberg NB NL Target price, NGN 138 Previous TP, NGN 162 Current price, NGN 130 Upside potential 6% Previous rating Buy Rating HOLD Guinness Nigeria Bloomberg GUINNESS NL Target price, NGN 99 Previous TP, NGN 103 Current price, NGN 125 Upside potential -18% Previous rating Sell Rating SELL The pricing date in this report is as of close 17 March.

Source: Bloomberg, Renaissance Capital Figure 1: NB: Summary valuation and financials Dec-YE 2013 2014 2015E* 2016E Net revenue, NGNbn 268,614 266,372 319,136 362,058 EBIT, NGNbn 69,171 66,861 69,007 82,958 Net income, NGNbn 43,080 42,520 50,615 58,152 EPS, NGN 5.70 5.62 6.36 7.31 DPS, NGN 4.50 3.50 4.44 5.10 EV/EBITDA, x 13.54 10.97 10.75 8.97 P/E, x 28.58 23.12 20.44 17.79 Div yield, % 2.76 2.69 3.41 3.92 *combined entity estimates

Source: Company data, Renaissance Capital estimates Figure 2: GN: Summary valuation and financials Jun-YE 2013 2014 2015E 2016E Net revenue, NGNbn 122,464 109,202 114,553 135,157 EBIT, NGNbn 20,614 16,123 10,615 14,321 Net income, NGNbn 11,864 9,573 5,951 9,098 EPS, NGN 7.93 6.36 3.95 6.04 DPS, NGN 3.20 3.16 5.14 6.54 EV/EBITDA, x 13.68 8.35 6.78 5.75 P/E, x 31.65 29.73 31.88 20.86 Div yield, % 2.79 1.69 2.51 4.08

Source: Company data, Renaissance Capital estimates

Renaissance Capital 19 March 2015

Beverages

Consumer continues to struggle

We believe that 2015 will be one of the toughest years for Nigeria from a macro standpoint, and even more so for the consumer. Yvonne Mhango, our SSA economist, forecasts core inflation of 13% with real wage growth moving further into negative territory. Beyond core inflation eating into consumers disposable income, the NLC is contemplating reducing the minimum wage as it believes the level is unsustainable with current oil prices. The minimum wage stands at NGN18k/month (~$80). Furthermore, after speaking to some public sector employees, we found that wages have not been paid so far this year for many people. Thus, we continue to believe the down-trending by consumers will continue.

Figure 3: Nigerian inflation

Source: Nigerian National Bureau of Statistics

New hurdles

We understand that the struggling consumer story is not new in Nigeria; however, after spending time with management and distributors, we believe that further hurdles will be faced this year. Pricing strategy will of course remain a key focus, and unlike in 2009 when the devaluation in the naira was passed onto the consumer, we do not believe this will be possible this time round. We forecast for price-mix gains of 0.2x CPI as a best-case scenario without sacrificing the already subdued volumes. In addition, distributor credit terms will have to be a key focus. Successful brewers and fast-moving consumer goods (FMCG) companies in Nigeria are only able to achieve efficient and maximum market penetration by providing credit facilities to their key distributors. Average credit terms are between 45-60 days; however, we see a risk of this extending further this year. Thus, the cash-conversion cycle becomes important for 2015 and NB appears to us to be in a stronger position.

Figure 4: Cash-conversion cycle, days


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Investment summary

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Beverages

Devaluation in 2009

Although the devaluation in 2009 was passed onto the consumer, we look back to see which company was able to better sustain margins in that environment. We believe NB leads once again.

Figure 5: Operating profit margin Figure 6: Net profit margin

*Naira devaluation occurred in 4Q08 Source: Company data

*Naira devaluation occurred in 4Q08 Source: Company data

Not a year you want debt

Given the likely subdued operating income for 2015, we do not believe there will be any unordinary capex; however, we believe GN will face pressure, given its high debt burden, where borrowings tripled from ~NGN3bn in FY14 to ~NGN10bn in 1H FY15. Thus, looking at interest coverage at GN vs NB, we see that NB is much better placed.

Figure 7: GN interest coverage Figure 8: NB interest coverage


*In 2016E and 2017E, we project no debt Source: Company data

Funding gaps to emerge

With these issues on debt, devaluation and distribution we analysed the cash positions at NB and GN along with their expected expenditures based on our estimates. The outcome is clear to us: GN will face a funding gap this year, thus the possibility for its pay-out ratio

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Beverages

to be cut is high from its average pay-out ratio of 75%. We believe that GN will either need to raise equity to finance its debt obligations or cut dividends substantially. NB, on the other hand, has sufficient cash to meets its obligations and maintain its historic pay-out ratio of 70%.

Figure 9: NB funded gap, NGNmn


Figure 10: GN funding gap, NGNmn


Still prefer NB over GN

This makes our case even clearer for our preference of NB over GN. However, given the rising rate environment in Nigeria we have raised our risk free rate assumptions to 15% from 13%, thus increasing our WACC for both companies. However, given the higher proportion of debt for GN, our DCF is only slightly affected vs NB. Thus, we downgrade NB to a HOLD (from Buy) with a revised TP of NGN138/share (from NGN162) and maintain a SELL on GN with a TP of NGN99/share (from NGN103).

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Beverages

Figure 11: NB key ratios Key growth ratios unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E Revenue growth % 6.3% 19.7% -0.1% 5.6% 13.4% 14.3% 15.9% 15.3% Gross profit growth % 8.8% 19.9% -1.6% 0.0% 16.3% 15.7% 17.5% 17.0% EBIT growth % 7.1% 10.1% -4.2% 1.2% 20.2% 17.8% 19.8% 19.3% EBITDA growth % 9.3% -70.6% 291.4% -1.1% 18.4% 16.9% 18.8% 18.3% Net profit growth % 13.2% 15.8% 0.5% 14.3% 14.9% 19.7% 20.8% 20.4% Total asset growth % -0.3% 35.9% 1.3% 12.1% 6.2% 8.3% 9.4% 9.9% Margins unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E Gross profit margin % 50.8% 49.7% 48.9% 46.4% 47.5% 48.1% 48.8% 49.5% EBIT margin % 25.8% 23.5% 22.6% 21.6% 22.9% 23.6% 24.4% 25.3% EBITDA margin % 33.8% 8.1% 31.6% 29.6% 30.9% 31.6% 32.4% 33.2% Net profit margin % 16.0% 14.6% 14.7% 15.9% 16.1% 16.8% 17.5% 18.3% Per share ratios unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E EPS NGN 5.70 5.68 5.57 6.36 7.31 8.75 10.57 12.72 EPS growth % 13.2% 12.8% -2.0% 14.3% 14.9% 19.7% 20.8% 20.4% DPS NGN 4.50 4.50 3.46 4.44 5.10 6.11 7.40 8.94 Dividends pay-out % 79.0% 79.3% 62.2% 69.8% 69.8% 69.9% 70.1% 70.3% Dividend yield % 2.8% 2.8% 2.7% 3.4% 3.9% 4.7% 5.7% 6.9% Year-end price NGN 162.8 162.8 130.0 130.0 130.0 130.0 130.0 130.0 Cash per share NGN 1.26 1.39 0.72 4.62 5.66 7.80 10.80 14.54 Balance sheet ratios unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E RoE % 41.9% 33.2% 25.7% 26.9% 27.3% 30.0% 32.9% 35.8% RoA % 17.0% 14.7% 12.8% 13.7% 14.4% 16.1% 17.8% 19.6% Debt/Equity x 0.08x 0.14x 0.14x 0.09x 0.07x 0.06x 0.05x 0.05x Net debt/EBITDA x 0.00x 0.07x 0.11x -0.09x -0.14x -0.20x -0.27x -0.34x Working capital/ Sales % 11.8% NA 2.6% 2.2% 0.8% 0.8% 1.1% 0.9% Capex/ Sales % 12.3% 13.0% 11.7% 10.7% 10.2% 9.7% 9.3% 8.9% Working capital unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E Days of inventory outstanding Days 57 61 59 59 60 61 61 62 Days of receivables outstanding Days 19 33 33 33 34 35 35 36 Days of payables outstanding Days 193 193 190 194 196 196 197 198 Cash conversion cycle Days -117 -99 -98 -101 -102 -101 -101 -101 Du Pont analysis unit 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E RoE % 41.9% 33.2% 25.7% 26.9% 27.3% 30.0% 32.9% 35.8% Net margin % 16.0% 14.6% 14.7% 15.9% 16.1% 16.8% 17.5% 18.3% Asset turnover % 106.1% 101.1% 87.1% 86.2% 89.7% 95.6% 101.7% 106.9% Gearing % 246.1% 225.3% 201.7% 196.9% 189.5% 186.5% 184.7% 182.8% Valuation 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E P/E x 28.6x 28.7x 23.4x 20.4x 17.8x 14.9x 12.3x 10.2x P/B x 11.0x 7.3x 6.0x 5.1x 4.7x 4.3x 3.9x 3.5x P/S x 4.6x 4.2x 3.4x 3.2x 2.9x 2.5x 2.2x 1.9x EV/EBITDA x 13.5x 52.3x 11.0x 10.8x 9.0x 7.5x 6.2x 5.1x

Source: Company data, Bloomberg, Renaissance Capital estimates

NB summary financials

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Beverages

Figure 12: Nigerian Breweries (Post merger): Income statement, NGNmn (unless otherwise indicated) Income statement Dec-YE 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E Revenue 268,614 302,528 302,322 319,136 362,058 413,806 479,621 552,791 Change 6.3% 19.7% -0.1% 5.6% 13.4% 14.3% 15.9% 15.3% Cost of sales (132,136) (152,151) (154,347) (171,214) (190,084) (214,760) (245,684) (279,089) Gross profit 136,477 150,377 147,975 147,923 171,974 199,046 233,937 273,702 Change 8.8% 19.9% -1.6% 0.0% 16.3% 15.7% 17.5% 17.0% Gross margin 50.8% 49.7% 48.9% 46.4% 47.5% 48.1% 48.8% 49.5% Operating expenses (67,306) (79,219) (79,773) (78,916) (89,016) (101,299) (116,865) (134,028) Operating profit 69,171 71,158 68,202 69,007 82,958 97,747 117,073 139,674 Change 7.1% 10.1% -4.2% 1.2% 20.2% 17.8% 19.8% 19.3% Operating margin 25.8% 23.5% 22.6% 21.6% 22.9% 23.6% 24.4% 25.3% Depreciation & amortisation (21,740) (24,428) (27,409) (25,531) (28,949) (33,069) (38,308) (44,128) EBITDA 90,912 24,428 95,611 94,538 111,907 130,815 155,380 183,802 EBITDA margin 33.8% 8.1% 31.6% 29.6% 30.9% 31.6% 32.4% 33.2% Interest (paid) received -6,931 -7,486 -2,976 3,301 116 1,713 3,079 4,988 Transaction cost - - -1,191 - - - - - Profit before tax 62,240 63,672 64,036 72,307 83,075 99,460 120,152 144,662 Tax rate 30.8% 30.8% 30.8% 30.0% 30.0% 30.0% 30.0% 30.0% Taxation (19,160) (19,615) (19,739) (21,692) (24,922) (29,838) (36,046) (43,399) Attributable profit 43,080 44,058 44,296 50,615 58,152 69,622 84,106 101,263 Change 13.2% 15.8% 0.5% 14.3% 14.9% 19.7% 20.8% 20.4% Ave shares in issue (mn) 7,563 7,761 7,960 7,960 7,960 7,960 7,960 7,960 EPS (NGN) 5.7 5.7 5.6 6.4 7.3 8.7 10.6 12.7 Change 13.2% 12.8% -2.0% 14.3% 14.9% 19.7% 20.8% 20.4% DPS (NGN) 4.5 4.5 3.5 4.4 5.1 6.1 7.4 8.9 Change 50.0% 50.1% -23.2% 28.2% 14.9% 19.8% 21.1% 20.8% Pay-out ratio 79% 79% 62% 70% 70% 70% 70% 70%

Balance sheet 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E PPE 153,366 176,999 193,800 193,578 201,523 208,786 215,153 220,499 Other non-current assets 54,108 100,410 98,497 100,410 100,410 100,410 100,410 100,410 Total non-current assets 207,474 277,409 292,297 293,988 301,933 309,195 315,563 320,908 Inventories 20,643 25,428 28,478 27,771 31,329 35,709 41,152 47,053 Trade and other receivables 14,212 27,447 16,357 29,193 33,838 39,612 46,372 54,034 Cash and cash equivalents 9,529 10,758 5,700 36,759 45,044 62,119 85,980 115,743 Other current assets 901 3,670 6,396 3,670 3,670 3,670 3,670 3,670 Total current assets 45,285 67,303 56,932 97,393 113,882 141,110 177,175 220,501 Total assets 252,760 344,712 349,229 391,381 415,815 450,306 492,737 541,409 Deferred tax 21,830 27,154 27,834 27,410 27,410 27,410 27,410 27,410 Borrowings 9,000 23,540 24,670 18,697 14,540 14,540 14,540 14,540 Other non-current liabilities 9,275 10,277 10,736 10,717 10,717 10,717 10,717 10,717 Total non-current liabilities 40,105 60,972 63,239 56,824 52,667 52,667 52,667 52,667 Trade and other payables 69,833 80,499 83,283 91,016 102,049 115,556 132,803 151,407 Other current liabilities 30,463 31,123 30,743 39,377 39,377 39,377 39,377 39,377 Total current liabilities 100,296 111,622 114,026 130,393 141,426 154,933 172,179 190,784 Total equity 112,359 172,118 171,964 204,165 221,722 242,706 267,891 297,959 Total liabilities and equity 252,760 344,712 349,229 391,381 415,815 450,306 492,737 541,409


Figure 13: Nigerian Breweries: Cash flow statement, NGNmn Dec-YE 2013 Proforma 2013 2014 2015E 2016E 2017E 2018E 2019E NOPAT 47,863

47,742 48,305 58,071 68,423 81,951 139,674

Depreciation 21,740

27,409 25,531 28,949 33,069 38,308 44,128 Working capital 31,699

7,717 6,965 2,829 3,354 5,044 5,041

Capex (33,125)

(35,482) (34,037) (36,894) (40,331) (44,675) (49,474) Operating FCF 68,177

47,385 46,764 52,954 64,514 80,627 139,369

Interest

(2,976) 3,301 116 1,713 3,079 4,988 Dividends

(27,544) (35,321) (40,595) (48,638) (58,921) (71,196)

Debt

1,130 (5,973) (4,157) - - - Other

38,051 (38,816) (35) (514) (924) (43,399)

FCF

56,047 (30,046) 8,284 17,075 23,862 29,763 Cash balance, bop

10,758 66,805 36,759 45,044 62,119 85,980

Cash balance, eop

66,805 36,759 45,044 62,119 85,980 115,743 Source: Company data, Renaissance Capital estimates

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Beverages

Figure 14: GN key ratios Key growth ratios unit 2013 2014 2015E 2016E 2017E 2018E 2019E Revenue growth % -10.8% -8.5% 4.9% 18.0% 12.2% 14.3% 13.7% Gross profit growth % -8.5% -13.7% -6.3% 22.2% 12.7% 14.8% 14.3% EBIT growth % -21.8% -22.4% -34.2% 34.9% 18.4% 20.2% 19.4% EBITDA growth % -3.1% -20.1% -35.6% 29.2% 16.5% 18.5% 17.8% Net profit growth % -19.3% -19.5% -37.8% 52.9% 27.3% 15.2% 20.3% Total asset growth % 9.3% 9.3% -7.8% 3.4% 5.1% 7.3% 7.8% Margins unit 2013 2014 2015E 2016E 2017E 2018E 2019E Gross profit margin % 45.8% 49.0% 42.0% 43.5% 43.7% 43.9% 44.1% EBIT margin % 16.8% 15.2% 9.3% 10.6% 11.2% 11.8% 12.4% EBITDA margin % 23.1% 19.9% 14.0% 15.3% 15.9% 16.5% 17.1% Net profit margin % 9.7% 10.2% 9.3% 8.8% 5.2% 6.7% 7.6% Per share ratios unit 2013 2014 2015E 2016E 2017E 2018E 2019E EPS NGN 7.93 6.36 3.95 6.04 7.69 8.86 10.66 EPS growth % -17.7% -19.8% -37.8% 52.9% 27.3% 15.2% 20.3% DPS NGN 7.00 3.20 3.16 5.14 6.54 7.53 9.06 Dividends pay-out % 88.3% 50.3% 80.0% 85.0% 85.0% 85.0% 85.0% Dividend yield % 2.8% 1.7% 2.5% 4.1% 5.2% 6.0% 7.2% Year-end price NGN 251.0 189.0 126.0 126.0 126.0 126.0 126.0 Cash per share NGN 58.98 60.75 61.09 60.50 62.05 65.08 68.54 Balance sheet ratios unit 2013 2014 2015E 2016E 2017E 2018E 2019E RoE % 25.6% 20.5% 13.0% 20.0% 25.2% 27.4% 31.8% RoA % 14.3% 7.5% 4.5% 6.9% 8.8% 10.2% 11.6% Debt/ Equity (x) x 0.26x 0.21x 0.16x 0.10x 0.10x 0.06x 0.06x Net debt/EBITDA x -0.11x 0.39x 0.46x 0.23x 0.21x 0.10x 0.09x Working capital/ Sales % -2.7% -8.9% 3.6% 0.3% 0.2% 0.3% 0.2% Capex/ Sales % 13.2% 12.8% 5.6% 4.5% 6.7% 7.8% 7.8% Working capital unit 2013 2014 2015E 2016E 2017E 2018E 2019E Days of inventory outstanding Days -68 -85 -62 -63 -62 -62 -62 Days of recievables outstanding Days 50 64 54 54 55 55 55 Days of payables outstanding Days -179 -194 -167 -171 -172 -173 -173 Cash conversion cycle Days 160 173 158 163 164 165 166 Du Pont analysis unit 2013 2014 2015E 2016E 2017E 2018E 2019E RoE % 25.8% 18.8% 11.4% 17.1% 21.0% 23.4% 27.0% Net margin % 9.7% 8.8% 5.2% 6.7% 7.6% 7.7% 8.1% Asset turnover x 1.0 0.8 0.9 1.1 1.1 1.2 1.3 Gearing x 2.6 2.6 2.3 2.4 2.4 2.5 2.6 Valuation 2013 2014 2015E 2016E 2017E 2018E 2019E P/E 31.7x 29.7x 31.9x 20.9x 16.4x 14.2x 11.8x P/B 3.1x 2.6x 1.5x 1.4x 1.3x 1.2x 1.1x P/S 3.1x 2.7x 1.6x 1.3x 1.1x 1.0x 0.9x EV/EBITDA 13.3x 13.7x 8.3x 6.8x 5.8x 5.0x 4.3x

Source: Company data, Bloomberg, Renaissance Capital estimates

GN summary financials

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Beverages

Figure 15: Guinness: Income statement, NGNmn (unless otherwise indicated) Income statement Jun-YE 2013 2014 2015E 2016E 2017E 2018E 2019E Revenue 122,464 109,202 114,553 135,157 151,642 173,285 197,096 Change 5.2% -10.8% 4.9% 18.0% 12.2% 14.3% 13.7% Cost of sales (66,385) (57,869) (66,441) (76,364) (85,374) (97,213) (110,177) Gross profit 56,078 51,333 48,112 58,794 66,268 76,072 86,919 Change 1.6% -8.5% -6.3% 22.2% 12.7% 14.8% 14.3% Gross margin 45.8% 47.0% 42.0% 43.5% 43.7% 43.9% 44.1% Operating expenses (35,464) (35,210) (37,498) (44,472) (49,311) (55,683) (62,576) Operating profit 20,614 16,123 10,615 14,321 16,956 20,389 24,344 Change -5.9% -21.8% -34.2% 34.9% 18.4% 20.2% 19.4% Operating margin 16.8% 14.8% 9.3% 10.6% 11.2% 11.8% 12.4% Depreciation & amortisation 6,123 10,620 5,957 7,028 7,885 9,011 10,249 EBITDA 28,244 27,368 17,621 22,766 26,519 31,416 37,000 EBITDA margin 23.1% 25.1% 15.4% 16.8% 17.5% 18.1% 18.8% Interest (paid) received -3605 -4442 -2348 -1427 -1376 -760 -728 Profit before tax 17009 11682 8267 12894 15580 19628 23616 Tax rate -30.2% -18.0% -28.0% -29.4% -25.6% -32.0% -32.0% Taxation (5,145) - (2,315) (3,796) (3,996) (6,281) (7,557) Attributable profit 11,864 9,573 5,951 9,098 11,585 13,347 16,059 Change -16.5% -19.3% -37.8% 52.9% 27.3% 15.2% 20.3% Ave shares in issue (mn) 1,496 1,506 1,506 1,506 1,506 1,506 1,506 EPS (NGN) 7.9 6.4 4.0 6.0 7.7 8.9 10.7 Change -17.7% -19.8% -37.8% 52.9% 27.3% 15.2% 20.3% DPS (NGN) 7.0 3.2 3.2 5.1 6.5 7.5 9.1 Change -11.4% -54.3% -1.2% 62.4% 27.3% 15.2% 20.3% Pay-out ratio 88% 50% 80% 85% 85% 85% 85%

Balance sheet 2013 2014 2015E 2016E 2017E 2018E 2019E PPE 88,113 90,683 91,188 90,298 92,632 97,203 102,403 Other non-current assets 709 805 805 805 805 805 805 Total non-current assets 88,822 91,488 91,993 91,102 93,437 98,008 103,208 Inventories 12,400 13,469 11,370 13,145 14,596 16,506 18,774 Trade and other receivables 16,649 19,218 16,834 20,132 22,739 25,985 29,555 Cash and cash equivalents 3,189 6,291 - - - - - Other current assets - 1,862 1,862 1,862 1,862 1,862 1,862 Total current assets 32,239 40,840 30,066 35,139 39,197 44,353 50,192 Total assets 121,061 132,328 122,058 126,241 132,634 142,361 153,399 Deferred tax 11,956 12,559 13,938 16,445 18,451 21,085 23,982 Finance lease obligation 8,796 27,430 5,678 3,681 3,541 2,117 2,044 Other non-current liabilities 2,995 3,029 3,029 3,029 3,029 3,029 3,029 Total non-current liabilities 23,746 43,018 22,645 23,155 25,021 26,230 29,055 Trade and other payables 32,507 30,724 30,407 35,877 40,252 45,998 52,318 Borrowings 3,000 3,149 2,484 1,610 1,943 1,161 1,388 Other current liabilities 15,768 10,376 20,270 17,983 16,064 17,616 16,874 Total current liabilities 51,275 44,248 53,161 55,470 58,259 64,775 70,579 Total equity 46,039 45,062 46,252 47,617 49,354 51,356 53,765 Total liabilities and equity 121,061 132,328 122,058 126,241 132,634 142,361 153,399


Figure 16: Guinness: Cash flow statement, NGNmn Jun-YE 2013 2014 2015E 2016E 2017E NOPAT

13,214 - 9,738 11,530

Depreciation

5,569 5,957 7,028 7,885 Working capital

(9,749) 4,167 396 317

Capex (13,952) (6,461) (6,138) (10,219) Operating FCF

(4,918) 3,663 11,025 9,513

Interest

(3,605) (4,442) (2,348) (1,427) Dividends

(10,849) (4,819) (4,761) (7,733)

Debt

21,797 (27,097) (17,503) (9,180) Other

(321) 11,772 4,215 3,487

FCF

2,102 (20,923) (9,373) (5,340) Cash balance, bop

(558) 1,544 (14,632) (9,373)

Cash balance, eop (558) 1,544 (14,632) (9,373) (5,340) Source: Company data, Renaissance Capital estimates

8


Beverages

Analysts certification

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the Issuer) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts current thinking.

Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or views in this research report. Research analysts compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance Securities (Cyprus) Limited and any of its affiliates (Renaissance Capital). Like all of Renaissance Capitals employees, research analysts receive compensation that is impacted by overall Renaissance Capital profitability, which includes revenues from other business units within Renaissance Capital.

Important issuer disclosures

Important issuer disclosures outline currently known conflicts of interest that may unknowingly bias or affect the objectivity of the analyst(s) with respect to an issuer that is the subject matter of this report. Disclosure(s) apply to Renaissance Securities (Cyprus) Limited or any of its direct or indirect subsidiaries or affiliates (which are individually or collectively referred to as Renaissance Capital) with respect to any issuer or the issuers securities.

A complete set of disclosure statements associated with the issuers discussed in this Report is available using the Stock Finder or Bond Finder for individual issuers on the Renaissance Capital Research Portal at: http://research.rencap.com/eng/default.asp

Nigerian Breweries Plc RIC: NB.LG Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at prices defined by Renaissance Capital. Guinness Nigeria Plc RIC: GUINNES.LG Renaissance Capital is either a market maker or on a continuous basis has sold to/bought from customers on a principal basis the securities or related securities of the issuer at prices defined by Renaissance Capital

Investment ratings

Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected negative total return). Standard ranges do not always apply to emerging markets securities and ratings may be assigned on the basis of the research analysts knowledge of the securities.

Investment ratings are a function of the research analysts expectation of total return on equity (forecast price appreciation and dividend yield within the next 12 months, unless stated otherwise in the report). Investment ratings are determined at the time of initiation of coverage of an issuer of equity securities or a change in target price of any of the issuers equity securities. At other times, the expected total returns may fall outside of the range used at the time of setting a rating because of price movement and/or volatility. Such interim deviations will be permitted but will be subject to review by Renaissance Capitals Research Management.

Where the relevant issuer has a significant material event with further information pending or to be announced, it may be necessary to temporarily place the investment rating Under Review. This does not revise the previously published rating, but indicates that the analyst is actively reviewing the investment rating or waiting for sufficient information to re-evaluate the analysts expectation of total return on equity.

Where coverage of the relevant issuer is due to be maintained by a new analyst, on a temporary basis the relevant issuer will be rated as Coverage in Transition. Previously published investment ratings should not be relied upon as they may not reflect the new analysts current expectations of total return. While rated as Coverage in Transition, Renaissance Capital may not always be able to keep you informed of events or provide background information relating to the issuer.

If issuing of research is restricted due to legal, regulatory or contractual obligations publishing investment ratings will be Restricted. Previously published investment ratings should not be relied upon as they may no longer reflect the analysts current expectations of total return. While restricted, the analyst may not always be able to keep you informed of events or provide background information relating to the issuer.

Where Renaissance Capital has neither reviewed nor revised its investment ratings on the relevant issuer for a period of 180 calendar days, coverage shall be discontinued.

Where Renaissance Capital has not provided coverage of an issuer for a period of 365 calendar days, coverage shall be discontinued.

Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare reports covering significant events or background information without an investment rating (Not Covered).

Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the securitys expected performance and risk.

Renaissance Capital reserves the right to update or amend its investment ratings in any way and at any time it determines.

Disclosures appendix

9


Beverages

Renaissance Capital equity research distribution of ratings

Investment Rating Distribution Investment Banking Relationships* Renaissance Capital Research Renaissance Capital Research Buy 123 38% Buy 2 67% Hold 121 38% Hold 1 33% Sell 74 23% Sell 0 0% Under Review 3 1% Under Review 0 0% Restricted 0 0% Restricted 0 0% Cov. in Trans. 1 0% Cov. in Trans. 0 0% 322 3

*Companies from which RenCap has received compensation within the past 12 months. NR Not Rated UR Under Review

Source: Bloomberg

Source: Bloomberg

0%20%40%60%80%100%

050

100150200250300350

Jan-

12Fe

b-12

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b-14

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t-14

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Guinness Nigeria share price, target price and rating history

Buy Hold Sell Not covered Cov. in Trans. Under Review Restricted Target Price Last Price

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Nigerian Breweries Plc share price, target price and rating history

Buy Hold Sell Not covered Cov. in Trans. Under Review Restricted Target Price Last Price

10

Renaissance Capital research team

Head of Research David Nangle +44 (203) 379-7954 [email protected] Head of Russian Research Vladimir Sklyar +7 (495) 258-7770 x4624 [email protected] Head of Turkish Research Ilgin Erdogan +90 (212) 362-3530 [email protected] Head of Turkish Product Michael Harris +44 (203) 379-7982 [email protected] Head of SA Research Rey Wium +27 (11) 750-1478 [email protected]

Name Telephone number Coverage Name Telephone number Coverage Macro Oil and gas Charles Robertson +44 (203) 379-7835 Global Ildar Davletshin +7 (495) 725-5244 EMEA Yvonne Mhango +27 (11) 750-1488 Sub-Saharan Africa Temilade Esho +234 (1) 448-5300 x5363 Sub-Saharan Africa Thabi Leoka +27 (11) 750-1483 South Africa Evgeny Stroinov +7 (495) 258-7770 x4046 Russia/CIS Oleg Kouzmin +7 (495) 258-7770 x4506 Russia/CIS Metals and mining Equity Strategy Johann Pretorius +27 (11) 750-1450 South Africa Daniel Salter +44 (203) 379-7824 Global Steven Friedman +27 (11) 750-1481 South Africa Michael Harris +44 (203) 379-7982 Turkey Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS Charles Robertson +44 (203) 379-7835 Global Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS Financials Diversified/Industrials David Nangle +44 (203) 379-7954 EMEA Ilgin Erdogan +90 (212) 362-3528 Turkey Can Demir +90 (212) 362-3511 Turkey, Greece Roy Mutooni +27 (11) 750-1469 x 1469 South Africa Armen Gasparyan +7 (495) 783-5673 Russia, CEE Oyindamola Olanrewaju +234 (1) 448-5300 x5377 Sub-Saharan Africa Omair Ansari +234 (1) 448-5329 CEE Ilan Stermer +27 (11) 750-1482 South Africa Telecoms/Transportation Adesoji Solanke +234 (1) 448-5300 x5384 Sub-Saharan Africa Alexander Kazbegi +41 (78) 883-4527 Global Ryan Ayache +971 (4) 401-9558 MENA Alexandra Serova +7 (495) 258-7770 x4073 Russia/CIS Artem Yamschikov +7 (495) 258-7770 x7511 Russia/CIS Consumer/Retail/Agriculture David Ferguson +7 (495) 641-4189 Russia/CIS, Africa Media/Technology/Real estate Robyn Collins +27 (11) 750-1480 South Africa David Ferguson +7 (495) 641-4189 Russia/CIS, Africa Mete Ozbek +90 (212) 362-3505 Turkey Ahmed Motara +27 (11) 750-1458 South Africa Zaheer Joosub +27 (11) 750-1427 South Africa Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Nazmiya Ebrahim +27 (11) 750-1431 South Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Luxury goods and tobacco/Beverages Utilities Rey Wium +27 (11) 750-1478 Global/South Africa Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS Non-financials Digvijay Singh +44 (741) 523-2451 MENA Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA

Renaissance Capital research is available via the following platforms: Renaissance research portal: research.rencap.com Bloomberg: RENA Capital IQ: www.capitaliq.com

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Renaissance Capital Moscow T + 7 (495) 258 7777

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Investment summaryNB summary financialsGN summary financialsDisclosures appendixAnalysts certificationImportant issuer disclosuresInvestment ratingsRenaissance Capital equity research distribution of ratings