Managing Director’s Report

highlights

  • 83% of our employees believe NBL is a great place to work according to the Great Place to Work Survey®
  • Our new low and non-alcoholic products were immediately successful and could be sold during part of the COVID-19 lockdown period
  • We continue our digital journey which has and will further improve our customer and consumer engagement, sales efficiencies and capabilities and ultimately drive overall future volume growth
  • We became more water-efficient and water-independent through our borehole water- and-yeast-extraction plants
  • We rolled out the #TakesaNation campaign to encourage unity and personal responsibility among Namibians in response to the COVID-19 pandemic
  • Our local partnerships assisted us to maintain operations during supply chain disruptions due to the Namibian and South African lockdowns

Challenges

  • The Namibian economy continued to struggle throughout the year
  • COVID-19 and the consequent lockdowns, muted economic activity, disrupted supply chains, negatively impacted overall consumer spend and led to many small customers and suppliers going out of business
  • The Namibian and South African alcohol ban significantly impacted volumes of sales
  • Margins remained under pressure and were further impacted by our decision to support consumers by not taking a price increase on our returnable bottles

We are proud of building a sustainable business over the last 100 years. Not many companies achieve this milestone. NBL has not only succeeded in becoming a high performing entity but has also set a benchmark for how to endure and continuously find opportunities to remain relevant. The business has gone through many phases and we are confident that we are well positioned to weather the current period of uncertainty and positively reinvent NBL.

A brewery under lockdown

NBL’s overall volumes declined by 16.6% in an unusually challenging year. We were delivering fair growth in volumes for Namibia, South Africa and our export market pre-COVID-19. Through continuous innovation and the pursuit to find new ways to excite our consumers, we launched several new products, including Windhoek Non-Alcoholic which reported lively demand trends to date.

The lockdown measures related to COVID-19, as set out here, required that we shut down most of the Windhoek brewery operations between April 2020 and the end of May 2020. Albeit unusual, this period allowed us to focus on high-priority plant maintenance while finding new ways to engage with our consumers, reduce operational costs and ensure we are ready to meet the market demand at the end of the alcohol ban period.

Fortunately, our stock levels allowed us to sufficiently provide for the post-alcohol ban consumer demand which resulted in NBL selling double our previous highest single-day volume on 2 June 2020. This achievement was as a result of our teams working right through the night to ensure our customers received their orders on time and in full. The period leading up to the end of the alcohol ban on 2 June 2020 was an exceptionally difficult time for suppliers, customers and employees.

Due to similar lockdown measures in South Africa some of our supply chains were disrupted. Before COVID-19 the NBL team had already been investigating new sourcing opportunities from other African countries while driving localisation efforts to ensure we can meet growing future demand. Following the closure of our borders, we were supported through our local suppliers. As testimony to our breakthrough thinking and great relationships, we did not run out of any packaging materials or supplies.

Towards the end of the financial year, NBL was fully operational, delivering products to customers and seeing consumers enjoying our brands again. Volume growth for Namibia ended on -14.6% (2019: +3.9%), for South Africa on -22.9% (2019: +44.4%) and export markets on 10.4% (2019: -31.2%).

An alcoholic beverage ban

Namibia and South Africa both faced prohibitions of alcohol sales, as well as brand marketing during certain levels and stages since March 2020. As per the Liquor Act, Act 6 of 1998, only beverages with 3% or more alcohol by volume content are classified as alcoholic beverages. Initially this definition was applied, and NBL was able to sell some brands such as Tafel Radler, Windhoek Light and Windhoek Non-Alcoholic. Unfortunately, regulations issued to combat COVID-19 as of 4 May saw the prohibition of beverages with any alcohol content. This had a substantial impact on our customers and suppliers, while sporting events and community initiatives came to a halt.

NBL delivered 3.9% growth in revenue by mid-year. Revenue for the full year, after multiple months of prohibition in both our Namibian and SA markets, decreased by 14.6% compared to prior year. The deceleration was amplified by the fact that NBL had, on account of an already struggling economy, decided not to take an annual price increase on returnable bottles, which constitute the dominant portion of Namibian beer sales.

Current market conditions demand that we compete for every litre we sell. Rising unemployment and reduced consumer spend are the most inhibiting factors for volume growth in Namibia. More and more consumers are migrating to mainstream and value segments. Fortunately, NBL has a strong offering through brands such as Tafel Lager, Windhoek Draught and King Lager to enable us to defend market share in all segments.

In South Africa, Heineken SA, in which NBL has a 25% equity share, has also been severely impacted by the South African Government directive in response to COVID-19. This resulted in a N$16.4 million decrease in royalty payments from Heineken SA. Production volumes according to the supply agreement with Heineken SA were however delivered as planned.

Supporting our stakeholders

Our purpose, Creating a Future, Enhancing Life, means that we consider all our stakeholders when doing business, and that we respect their contribution to and interest in our business. This was particularly evident during lockdown periods, during which stakeholders faced many different challenges.

NBL is an industry leader, a large employer and a responsible corporate citizen. This year, we supported our stakeholders in the following ways:

Engaging our employees

NBL participated in the annual Great Place to Work Employee Engagement Survey for 2020 and was once again accredited as a Great Place to Work® in Africa. NBL’s Trust Index score increased to 72% (2019: 70%), and we again ranked overall 5th place in the large corporate organisations as best place to work for in the entire Africa.

83% of employees at NBL say ‘this is a great place to work for’. Our most improved survey results were in employees’ perception that we care about one another, that we celebrate special events, and that we can count on one another to cooperate. The survey indicated that employees are positive about NBL’s senior leadership and overall downward communication.

NBL also participated in the Great Place to Work Culture Audit©. The results highlighted that NBL is a proud employer with a clear strategy of being committed to sharing and engaging with all employees. Relative areas of strength included inspiring and effective leadership. The audit findings pointed to a culture of caring and inclusion, and recommended that we continue working on training and diversity awareness. Overall NBL’s culture was rated among some of the best companies in Africa.

These results support a deliberate shift this year with our new 2025 Breakthrough Strategy emphasizing that once people come first, performance will follow. We experienced the outcome of this approach in the way our employees adapted to lockdown measures and cared for their colleagues and the business. Where possible, employees worked from home, and operations implemented shifts systems. The safety of our employees remained an absolute priority at all times.

Our new strategy further saw the introduction of an updated performance management model effective 1 July 2020. The model focuses on performance inspiration and leadership engagement opposed to a key performance indicator driven system.

Leadership engagement, employee inspiration and relationships were further a vital aspect which saw employees supporting sudden changes in business strategy and operational demands brought on by the lockdown and alcohol ban stages of COVID-19.

The impact of COVID-19 on sales volumes saw the implementation of various cost-cutting measures. Some of these included reducing and or placing on hold all operational expenditure. On the human capital side, cost reductions included reducing leave provisions, salary reductions for executives, halting all overtime work, halting sales incentives as well as agreeing on no salary increases and bonuses. Other than NBL’s executives however, the rest of our 827 employees continued to receive their full salary at all times. Retrenchments remained a last resort. We are further grateful for the support and understanding of our bargaining unit and the Namibia Food and Allied Workers Union (NAFAU) which agreed to no bonuses during 2020 while wage increases were deferred to the 2021 financial year. Wage negotiations scheduled for this year were postponed until 2021.

Everyone leading, everyone making a positive impact

During the COVID-19 lockdown stages, many employees were not able to perform their daily tasks from home given the nature of their work. This unfortunately meant that many employees were required to take annual leave during this time, with some running out of leave in the process.

As an example of breakthrough thinking and making a positive impact, NBL with the support of its employees, created a leave bank where employees that were able to work from home could voluntarily donate some of their leave days to help those that were not able to do so. We had a great response from NBL employees with the donated leave ensuring that no NBL employee was required to take unpaid leave during the lockdown stages.

Bringing our suppliers closer

The disruption of global supply chains during the pandemic highlighted the importance of localisation and supporting small businesses to develop and grow which ultimately allows NBL to reduce its exposure to external country risks and fluctuating exchange rates. Working with local suppliers during lockdown in Namibia also brought home the need for more flexibility and collaboration as both parties focused on getting products out and available.

Our long-term relationships really came into effect during the pandemic by supporting fair tradings terms and honest discussions. There is mutual understanding of this unprecedented global challenge with a great deal of risk mitigation coming from sound relationships.

Many suppliers have over-capacities, cash flow concerns, and high uncertainties pertaining to volumes due to the impact of the pandemic.

Our flagship localisation project, the commercial barley growing venture in the Kavango region, has unfortunately been put on hold due to the effects of the drought and import restrictions for seeds. We are however still committed to developing this industry going forward.

Inspiring and engaging consumers

Since the 1990s we have developed a much deeper understanding of our consumers and the life cycle of brands. This has led us to build a basket of beverages that meet the diverse needs of our nation. This year we experienced the benefit of this strategy by seeing consumers remaining loyal to our core brands but also being able to enjoy some of our more innovative low and non-alcoholic products during the alcohol sales ban.

Our strategic brands all support social or environmental initiatives. This provided us the platforms to provide focused consumer support during the pandemic. In response to the measures taken for COVID-19, and keeping true to our purpose Creating a Future, Enhancing Life, we launched a campaign to remind consumers of our collective responsibility to keep each other safe. The #TakesANation campaign is grounded in caring and looking out for each other. The core message during lockdown stage three was to encourage all to “shop responsibly, drink responsibly, socialise responsibly, entertain responsibly and enjoy responsibly”.

Lockdown conditions accelerated the uptake of digital engagement with consumers. We continued applying an omnichannel approach when investing in advertising and promotional activity. This ensures reach and impact through new digital and traditional media channels.

Our investment into a digital insights panel in recent years showed its value during COVID-19 as it allowed us to understand consumer behaviours and sentiment during these times, and to continue research without having to rely on traditional face-to-face interviews.

Our brands will continue to identify meaningful initiatives to support consumers. Through NBL’s scale and credibility we are in a strong position to influence and educate. We want to contribute to building a nation of determined, hardworking, yet caring people who will have the endurance that NBL has had over the past 100 years.

Supporting and partnering with our customers

We have an extensive customer base built over many years by consistently delivering high-quality products and excellent service as well as having two of Namibia’s most loved brands, Tafel Lager and Windhoek Draught within our large brand portfolio. Over and above this, we have earned trust by rewarding consumers through events and promotions, and through continued sponsorships and investments into their communities. Nevertheless, COVID-19 significantly changed many fundamental trade dynamics. The pervasive discounting market in the past few years had put customers in a strong position to demand. The recent lockdowns and stages of alcohol bans have however severely impacted many of our stakeholders and trade partners. True to our purpose, we have supported many of our loyal customers through payment term extensions and thus further cemented our long-standing partnerships.

A positive long-term outcome is a shared understanding of the value chain and importance of shared value to secure sustainability for all stakeholders. Unfortunately, there have been several business casualties among our customers, with some shebeens and small redistributors not surviving the period of restricted trade. NBL was acutely aware of this risk since the beginning of the first lockdown and worked closely with other industry players to lobby Government to ensure they could return to trading as quickly as possible however with full adherence to all directives.

Operational investments and improvements

Digital sales and planning

The implementation of our new sales and planning system was a highlight during the financial year. By replacing our manual system with a real-time platform, allows us to improve forecasting and enhance customer experiences. Planning decisions and engagement are now based on a much wider range of data and insights that were previously not available or not consolidated into meaningful data. Our sales and area managers are now able to engage proactively and meaningfully with customers on the ground, while focusing their time on building relationships rather than capturing data.

We anticipate that the system will positively impact customer loyalty, volume growth opportunities and overall value creation.

We further exchanged a manual process with an automated interface between NBL and our partner, Heineken SA, that allows for the exchange of daily information on product stock on hand, management of daily call-offs, ageing of stock and other vital information feeds.

Our manual transport schedule system also migrated to a SAP-based system. This migration now allows the Market Supply department to capture sales orders, which significantly reduces the time spent on the process. Further to this, purchase requests can be generated automatically, leading to more accurate transport invoice rates.

Our natural resources benefit from recent investments

A new borehole water treatment plant was commissioned in November 2019 to provide up to 80% of NBL’s water requirement from our on-site boreholes. The new water treatment plant is highly automated to provide consistent high quality brew water under all conditions. The new plant further reduced our overall water consumption as well as down time all while being actively monitored by the installation of additional automated water meters.

Coming out of a prolonged drought, the new plant ensured that NBL – as the biggest industrial water user in Windhoek – can actively mitigate the risk of future droughts as well as lessen the burden on the City of Windhoek’s water supplies. NBL’s annual borehole abstraction permits determine the volume of water we can access from the boreholes.

Our project which allows us to recover beer from spent yeast showed very promising early results, even exceeding expectations. Unfortunately, it had to be paused due to low production volumes during lockdown, which made it impossible to synchronise brewing with yeast recovery, as both processes have to run parallel.

Brand performance

Tafel Lager remains our top beer brand in terms of penetration, volume and revenue contribution. Windhoek Draught is on a growth trajectory with a distinct trend towards more frequent consumption. The decline in sales of Windhoek Lager over the past few years have slowed and, in some regions, we are seeing clear evidence of growth again. Strongbow cider volumes are under pressure in a highly competitive category which has seen many innovations in the past year.

Our drive to be ahead of the curve in meeting the ever-changing needs of consumers ensured resilient sales this year. We continue innovating with highlights for the period including:

  • Windhoek Non-Alcoholic was launched as a new offering in the premium segment, providing consumers with a non-alcoholic alternative without compromising on quality and our 100% pure beer positioning of the Windhoek brand. The brand variant was brought to market in record time, testing our ability to conceptualise and execute with agility. Volumes exceeded expectations, partly also due to the increased uptake during the lockdown period.
  • The success of Tafel Radler, a fusion of citrus juices and beer in the low and non-alcoholic beer segment, retained momentum, supported by the launch of a new limited-edition grapefruit variant.
  • The new classic, McKane Dry Lemon is the latest addition to NBL’s range of superior value and quality soft drinks/mixers, produced in Namibia.
  • King Lager, Namibia’s home-grown barley value beer is showing good growth following the Man with a Plan campaign. It is gaining a foothold with our strong regional approach and by building awareness through trade activation supported by price compliance by our trade partners.

Sales of soft drinks and water were flat on last year, and under pressure during lockdown. The sudden change in drinking occasions and convenience impacted consumer behaviour – especially where these beverages were mainly consumed with convenience and takeaway foods.

Market performance

For the first nine months of the financial year, overall volumes were growing both in Namibia and South Africa. Unfortunately, prohibition and national lockdowns resulted in a negative overall volume performance.

Tanzania remains our biggest export market other than South Africa, and it was our best performing export market for the year. It is also our second largest Windhoek Lager export market. Volumes continued to grow despite the impact of COVID-19 measures, which restricted our ability to export within the first stage of Namibia’s lockdown.

Heineken SA Exports Company continues to market and distribute our brands in Botswana, Lesotho and Eswatini. Through this partnership and our combined portfolio of brands, we maximise supply synergies and route-to-market efficiencies.

We further launched Tafel Lager and Tafel Lite in Zambia and are excited about this opportunity – the brand is showing good growth albeit off a small base.

The financial impact of COVID-19, including the suspension of production, trading and exports, was stifling. NBL’s volume growth had been gaining momentum since the positive turn in 2019, until business came to a complete halt at the end of March 2020. As a result, revenue decreased by 14.6% to N$2 646 million (2019: N$3 098 million). The comparative numbers below show the negative consequences of alcohol trade restrictions:

Prior to lockdown measures in most of our markets, performance was on track for a positive year following the launch of innovative new products such as Windhoek Non-Alcoholic and buoyant demand for Tafel Radler. Growth in South Africa was outperforming forecasts, and NBL was preparing to supply higher volumes to support Heineken SA’s constrained capacity.

The lack of throughput and sales in April and May had a direct impact on operating profit which declined by 30.5% to N$453 million (2019: N$652 million). As with any brewery, our operational cost structure has a fixed element that assumes a minimum level of volume throughput. Consequently, operating profit declined more steeply than volumes. However, we took immediate steps to reduce non-productive costs and other expenses. These included remuneration adjustments, reduced advertising and marketing spend as well as reduced intake of raw materials and packaging.

Reduced imports of raw material meant that NBL was not hit by higher exchange rates during the last quarter of the year. However, the exchange rate is expected to have a potentially severe impact on costs in the first half of the next financial year. Operating expenses, which were in line with inflation prior to COVID-19, decreased by 10.3% for the year.

Margins were under pressure before COVID-19 arrived due to persistent economic challenges and the effect on consumers’ disposable income. As mentioned earlier, we did not implement an annual price increase on returnable bottles, which constitutes the dominant portion of Namibian beer sales. This assisted in retaining volumes and market share in Namibia.

Heineken SA experienced even more severe trade restrictions in South Africa, resulting in a loss of N$76.7 million in associate contribution. This is a major swing from last year’s contribution of N$450 million which included a substantial deferred tax asset derived from previously unutilised tax losses.

Profit for the year decreased by 71.7% to N$264 million mainly as a result of lower volumes and the equity loss from Heineken SA.

Liquidity was well-managed, especially in the last three months of the financial year. We refinanced N$580 million of debt which moved the debt’s maturation date from November 2020 to June 2025. We also arranged N$570 million in additional facilities to mitigate any potential liquidity risk.

We recognise the increasing risk of customers defaulting on their payments and made additional provision for debtors. At year end our debtor days ratio was at 31 (2019: 30). NBL’s net debt-to-equity ratio increased to 20% (2019: 11%).

Cash flow remained in a fairly stable range and positive position. Net cash flow from operating activities increased to N$24 million from a negative N$81 million in the previous financial year. This was mainly due to significant tax refunds and a smaller special dividend paid out compared to prior year. Net cash outflow from investing activities of N$143 million was higher than the previous year. Returnable bottles remain our main capital investment item. We are conservative in our planning for capital investment in the next year, and will focus on completing projects that were delayed due to COVID-19. With that, we also remain open to exploring acquisitive or partnership opportunities that might emerge in the wake of COVID-19.

Reinheitsgebot
At Namibia Breweries, we are extremely proud that we uphold the tradition established in 1516 and brew according to the Reinheitsgebot. Written by Bavarian noblemen in the year 1516, the law says only water, malted barley and hops may be used to brew beer.

Our strategic risks and opportunities

We regard our strategic risks and opportunities as those conditions, situations or trends that could significantly impact NBL’s financial strength, competitive position or reputation within the medium to long term.

Risk and/or opportunity

How we respond

The rapid spread of COVID-19 globally
Our business continuity plans for crisis responses have enabled us to reprioritise and manage costs effectively. NBL’s COVID-19 response team was critical to co-ordinate our efforts. Safety and preventative measures have been put in place, while we continue to engage with Government.
Equity investment and supply agreement with Heineken SA
We have regular engagement with Heineken SA as the performance of this business partner has a significant impact on NBL’s profitability. A supply agreement is in place and we continuously align business strategy and operational opportunities.
Exchange rate volatility
We have a Group hedging policy and continue diversifying into new markets, thereby reducing currency concentration risk. The local sourcing of goods and services mitigates against exchange rate risk, as the unpredictability of the local currency purchasing power impacts the cost of imports as well as income derived from export sales.
Widespread drought
We explore alternative water sources while monitoring and reporting on our water use. The boreholes at our Windhoek site ensure sustainable supply of water and our water treatment plant contributes to efficient water use of the highest quality.
Non-compliance
We are committed to complying with all relevant laws, regulations and standards to mitigate against business disruption, fines, loss of income and reputational damage. We monitor this against NBL’s compliance universe and have a combined assurance programme to ensure effective controls. The risk and audit committees have oversight of the status of compliance.
Loss of market share to competitors
Our challenge is to break through the clutter in the market with distinctive brands, impactful advertising and driving conversion at point of purchase. We do this through an optimised route to market model, visibility and excellent execution across all consumer touchpoints. We ensure a balanced portfolio with profitable offerings and unique, differentiating experiences across the price ladder.
Credit risk due to debtors
Our credit management approach enables us to address the inability of customers to pay on time and in full, thereby mitigating against financial losses. We have a credit control policy and compliance is monitored.
Economic climate
Our exposure to a limited and highly competitive Namibian market under subdued economic conditions may dilute the profitability of the business and result in cash flow challenges. We address this through the timing and extent of price increases, by reducing costs and overheads to maintain margins and monitoring Company performance through a range of business forums.

“The past 100 years have been filled with dramatic changes, in our country, in technology and in our business. But what has not changed is our passion for brewing and always using the best quality ingredients.

Marco Wenk,

NBL Managing Director

Our strategic priorities

With high levels of uncertainty in the wake of the global pandemic, we are confident that the 2025 Breakthrough Strategy provides us with clear guidance and direction for the journey.

We have several priorities for the next year:

  • We are planning a rigorous stock-keeping unit (SKU) optimisation exercise to eradicate inefficiencies that have been created in our value chain through low and non-performing SKUs. This will help us free up line capacity as well as shelf space for brands, thereby serving our commitment to deliver extraordinary results.
  • Innovation is more important than ever to ensure we have a portfolio that will meet the needs of our consumers and all relevant occasions; we will need to reimagine the typical beer occasion which was our greatest volume driver in the past.
  • We will continue on our digital transformation journey. This includes driving the full adoption of our new sales platform and the introduction of technology that will allow us to measure the effectiveness of our advertising spend.

Outlook

In the wake of the global pandemic, we expect continued hardship in our core markets. Rising unemployment and reduced consumer spend are the most impactful concerns for our business, combined with the ability of governments to stimulate and support economic recovery in general.

Our people remain at the core of our success. Their skills and competencies 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.

Our focus is on stabilising the business, maximising volumes while remaining flexible and managing costs. We aim to recover to normal volumes as soon as possible while protecting margins: ensuring that we deliver at the lowest cost yet achieve the best price and ensure unwavering quality.

Operational efficiencies will be under pressure if volumes remain subdued for a longer period of time, which may lead to strategic right-sizing of operations. Retrenchments will however remain a last option.

We are actively searching for opportunities beyond our borders. The world is changing, we are open to explore new trading models and partners while being focused on remaining sustainable for the next 100 years.

Appreciation in a difficult time

This year my appreciation really goes to the entire NBL team: anyone and everyone walked the extra mile under very difficult conditions to ensure our success in an extremely challenging financial year.

We also appreciate our business and financing partners who continue to support us, the O&L Group and Heineken SA.