For the first time in three years, volumes in Namibia showed growth of 3.9% againsta recessionary backdrop.
Volume growth for Namibia and South Africa
The 2019 financial year was one of consolidation in preparation for change: we are appointing new leadership teams within the O&L Group, starting a new strategy cycle, dealing with a harrowing drought situation in Windhoek and preparing for NBL’s 100-year celebration in 2020. Looking back, it was a critical year in which to think about remaining relevant in the long term.
For the first time in three years, volumes in Namibia started picking up again, delivering 3.9% growth on 2018 against a recessionary backdrop. Volume growth to South Africa reached a stellar 44.8%, also in a slow market with low consumer confidence. Export volumes decreased by 31.2%. Overall volumes increased by 13.8% with revenue increasing by 15.3%.
The South African performance is particularly encouraging, as we are now for the first time seeing all aspects of our agreement with Heineken South Africa delivering on the potential we have anticipated for many years. The congruence of great brands, a well-designed infrastructure and considered investment is paying off.
Higher volumes overall had a wider impact than just increasing sales: it confirmed NBL’s standing as a steady and reliable client among raw-material suppliers in Europe where they are experiencing lower levels of growth in the beer category.
Our level of innovation excites suppliers who see the potential for further growth, and who are eager to collaborate on research. We also benefit from global suppliers setting up facilities in South Africa as they expand, delivering better lead times and product flexibility. Where some of the bigger food players in South Africa had to reduce their orders for ingredients and packaging due to lower volumes, we were able to capitalise on greater supplier capacity and negotiate better pricing.
Developing local supply remains a priority. We are working to align all functions – not only our strategic sourcing team – with this purpose. Developing local suppliers demands higher levels of involvement, guidance and commitment from all stakeholders in the process. We describe our progress in local sourcing in the material matters section.
Our customers in the local market were under pressure, despite the apparent growth in volumes. As a large portion of customers still do cash business, they adapted the size and frequency of orders to fit the cash they had on hand. The change in buying patterns disrupted our route-to-market and led us to re-evaluate how we handle cash flows and deliveries. We initiated a model where redistributors now deliver to smaller outlets. We provide them with trucks and drivers – owned and paid by NBL – which they can use to do redistribution and make additional sales. This gives them an incentive to sell more and solves the challenge of small, irregular batch orders.
Securing sustainable supply
The past year was characterised by the impacts of climate change in Europe and locally. Drought conditions in Europe affected the price and availability of hops and barley, compounded by farmers retaining stock. Our sourcing efforts were further challenged by the growth in demand from South Africa that exceeded our production forecasts. This puts pressure on procurement, forcing everyone in the supply chain to take longer planning horizons into account.
Heineken seconded an expert in Sales and Operations Planning (S&OP) to improve synchronization between all internal functions at NBL as well as with the South African business.
Suppliers, on the other hand, have started planting heat-resistant barley varieties with lower water requirements. Yield levels are becoming a lesser priority for barley farmers facing extreme weather events.
In Namibia the drought severely affected the sustainability of the barley project that we initiated in collaboration with Government’s Green Scheme programme in 2015. The King Lager brand, which is produced from this barley, is doing well, with volumes picking up significantly especially in the coastal region, albeit from a small base.
Our contribution to the O&L Group breakthrough metrics for 2019
Read more about these initiatives and progress in the material matters section.
We are now at a point where we need to rethink our model and targets while remaining committed to the principal aims of the project: to establish a local barley supply base that will create jobs and empower small farmers – in line with our Group vision metric target.
Securing water responsibly
The drought situation in Namibia has dire consequences: as many as 500 000 Namibians are without access to enough food, livestock herds have been reduced dramatically and feed costs have increased significantly. The Government declared the second state of emergency in three years.
With a succession of drought conditions since 2013, NBL made long-term investments to secure sustainable and responsible water supply for production, while helping to alleviate the plight of communities where possible. We are Creating a Future, Enhancing Life by donating locally grown barley to the national ‘Dare to Care Disaster Fund’ and also donated water kits and equipment to keep the Fish River Canyon hiking activities going.
In terms of our own operations, we have boreholes that could significantly reduce our water allocation from the City of Windhoek. These boreholes access a northern aquifer that is not linked to the city’s underground water sources.
We have approved further investments in water treatment plants. New equipment will provide us with world-class technology to maximise every litre of water used.
Read more about our water-savings initiatives in the material matters section.
As a result of limited pack size options, Vigo and Code were not able to achieve sustainable volumes and thus the soft drinks portfolio was trimmed with both brands being discontinued.
To support our brands, we have grown from an innovation team of one to seven qualified and experienced team members, created a dedicated sponsorships and events team and appointed a consumer insights analyst. We use collaboration tools to build on ideas and design solutions across functions and share learnings with the rest of the Group where possible.
Market performance summary
Market volume comparison (%)
Export volumes decreased with 31.2% mainly due to the commercial responsibility of Botswana, eSwatini and Lesotho shifting to Heineken South Africa Exports Company.
Tanzania remains our biggest export market other than South Africa. The introduction of tax stamps in this market, and further regulatory measures in adjacent southern African markets, are proving to be testing.
Sales performance in Kenya improved this year and we are confident about future growth opportunities.
Exports to the UK have been steady, with Germany showing promising growth.
We have also seen pockets of demand from small, new markets such as Taiwan, Bermuda and the Caribbean.
Financial performance summary
Turnover increased by 15.3% to N$3 098 million (2018: N$2 687 million) on the back of volume growth in Namibia and South Africa, supported by innovative new launches such as Tafel Radler. NBL’s operating profit increased by 6.3% to N$652 million.
Operating expenses increased by 17.9%. We continue to manage costs and increase efficiencies throughout the value chain. Higher volumes contributed to lower costs per unit.
We maintained our level of investment in brands but prioritised spend to ensure that we achieve the highest possible impact and furthest reach.
A healthy profit attributable to shareholders of N$932 million (2018: N$398 million) was delivered – an increase of 133.9% on the prior year. Heineken South Africa made a significant contribution to profit by delivering N$106 million (2018: N$96 million) in royalties.
NBL’s net debt-to-equity ratio increased to 11% (2018: -2%) due to the payout of a special dividend in the current year decreasing cash on hand.
Net cash flows from operating activities decreased to N$81 million outflow (2018: N$357 million inflow) due to the payout of a N$400 million special dividend. Net cash outflow from investing activities decreased, mainly due to less capital expenditure. Net cash flow from financing activities decreased to an outflow of N$56 million (2018: N$158 million) due to the repayment of capital loans and utilising a revolving facility of N$100 million.
Capital investment for the year amounted to N$123 million (2018: N$163 million).
The old Hansa Brewery in the central Swakopmund business district, which housed NBL warehousing, administration and distribution services, was closed and a new facility was opened in Walvis Bay in February 2019. The new depot was constructed at a cost of N$27 million over a period of 12 months and offers customers and employees a safe and pleasant working environment.
The rationale for the move was twofold: the Swakopmund facility was becoming a safety risk while our route-to-market options favoured Walvis Bay, where easy access to the harbour will reduce handling and transport cost.
The property in Swakopmund has heritage and strategic value and we plan to explore future options for development within the Group.
Other major capital investments included N$49.5 million for the upgrade of a packaging line. In 2017, a decision was taken to replace the dry-end packing equipment of one of the bottling lines to increase line capacity. Over time this equipment, installed in 1982, became a bottleneck. The new equipment was installed in July 2018 and a floor and drainage system overhaul was done at the same time. The new bottling line delivered a capacity increase of 20%.
Most of NBL’s machinery is imported and the cost of parts is subject to exchange rate fluctuations. The related repair and maintenance agreements are similarly affected. Consequently, we continue focusing on developing our in-house technical expertise to enable us to manage as much of the internal line maintenance as possible.
Our strategic risks and opportunities
Current identified opportunities
- Improving overall operational efficiencies and securing a low-cost operating model.
- Pursuing new business opportunities such as co-packing.
- Continue rolling out digital technology and system enhancements for further efficiencies.
- Focus on talent management, specifically on agility, flexibility, interdependence and breakthrough leadership.
- Growing and evolving route to market in Namibia and beyond
Creating a breakthrough environment for employees
Our performance this year is testimony to NBL’s resilience and ability to adapt to changes in our operating environment. It is also the direct result of our employees taking ownership of challenges and creating opportunities to bring our purpose to life. Without this, NBL would have delivered very different results.
Our employees continuously find ways to save water, reduce our carbon footprint, counter the competition and increase production despite challenges and perceived limitations. We foster this approach through the breakthrough architecture that is based on a philosophy and culture of genius in every employee.
What we expect from a breakthrough leader
- To think big, commit to results they don’t yet know how to produce and to explain the benefit of possibility and what can be achieved
- To create a breakthrough environment characterised by affinity, ownership and interdependence that includes every view
- To lead honestly and from the heart, talking through concerns with others, connecting at all levels and to have fun
- To produce what the leader and his/her team commit to by consulting, converting ideas into results and creating new realities
- To own and live NBL’s purpose and values by constantly communicating and sharing, connecting to the leader’s personal purpose and making it clear that each person makes a difference
- To see leadership as a journey, always looking for new opportunities for growth and by recognising leadership growth and performance
- To constantly probe and inquire, be open to new ideas and willing to try new ways while sharing their ideas
Our digital journey
Looking back over the past eight years of our current strategic cycle, the NBL digital transformation journey has been most evident in marketing and sales. Integrated marketing strategies have been developed for key brands and advertising spend. While still investing behind traditional media like TV and radio, there is increased focus and spend behind digital channels across various platforms. Our ambition is to enhance both customer and consumer experiences through digital capabilities.
Priorities for next year
Our water and effluent costs have significantly increased over the past years. Although an alternative water supply to the central region of Namibia is being investigated by the Government, we anticipate that this might take between 8 and 10 years to complete. Securing a sustainable water supply in Windhoek therefore remains a priority. In the next year we plan to install a water treatment plant for the boreholes and invest in yeast extraction equipment.
Innovation remains a focus area as we continue identifying ways to reach the market quicker while offering unique experiences, for example through the Oktoberfest, Kasi-Vibe and City Markets. The marketing team is working on exciting new campaigns for our brands in South Africa.
Talent value management will receive attention with the emphasis on key qualities, skills and competencies that will catapult NBL into the future. These include agility, flexibility, interdependence, breakthrough leadership as well as specialised innovation, product development, design thinking and digital commerce skills.
We plan to continue fine-tuning operations and find a model to take the business to the next level. The world is changing, therefore we need to explore new opportunities to ensure that we remain relevant in a highly competitive market.
Marco’s kickstart message
It is with tremendous excitement that I embark on this new journey at NBL. While the business has seen significant growth over the past years, Namibia is without a doubt facing challenging economic conditions. These will require that we take all measures necessary to ensure we place maximum focus on efficiencies and an ongoing sustainable business. We also have to continuously challenge ourselves to innovate and find opportunities for growth, within as well as outside our borders.
I would like to take this opportunity to express my sincere appreciation to both Wessie and Graeme for their leadership and outstanding achievements at NBL which have placed the business in a great position to realise its future growth targets. The 2019 financial year was an outstanding one for NBL and I look forward to working with the entire team to realise our 2020 targets as well as Vision 2025.
A message of farewell from Wessie
I am in the fortunate position that I am not leaving NBL. I am just taking on a different role: on the Board, chairing the performance meetings and remaining involved with the brand ambassadors and sport.
In this new phase I will continue carrying our brands with me. I want to thank each and every one of our employees for what we have achieved over the past seven years. Working with you, I have seen how everyone has something to give to unlock value. I have experienced what it means to live our purpose, Creating a Future, Enhancing Life.
We have created a legacy, and we have many opportunities going forward to take the Group to the next level.
I am thankful for every experience, every friendship at NBL. Until later.
Our number one priority is always Namibia and its people – they are our responsibility.
Wessie van der Westhuizen, outgoing Managing Director
Waldemar’s kickstart message
I would like to thank the O&L leadership and NBL Board of Directors for giving me this unbelievable opportunity; I am excited to embrace this new challenge in my career as Finance Director at NBL.
I look forward to continuing my career journey by leading and following our breakthrough people and teams in delivering the O&L 2025 Vision. The future for NBL and O&L is very exciting. To be part of a team who will continue to lead breakthrough thinking and outcomes at NBL to deliver the O&L Purpose is a unique privilege.
A message of farewell from Graeme
My personal highlight at NBL was the personal growth I experienced as a leader. When I look back at the person I was six years ago, I realise the shift in focus towards people as a priority. The people I worked with, and the experiences they created for me, were amazing.
I see NBL going from strength to strength and finding the sweet spot in entering markets beyond our border. This Company is on its way to finding something different that will speak to consumers in a new way.