MD′s Brief

After hitting record moving annual sales of 1,000,000 hl, Nile Breweries Limited has continued to show marked progress with a domestic market share now standing at 54.3%, compared with 45.1% in F09Q2. In the same quarter, there was a rise in the domestic volume by 29% on F09Q2.

Sales & Marketing
We continue to dominate the economy segment of the Ugandan beer market, but lag competition in the worthmore or premium brands. We are closing the gap in the mainstream in spite of lower pricing on Pilsner Lager compared to Nile Special.

The Go to Market (GTM) structure has been partly implemented and the full District Management structure will be complete by F10Q4 (March 2010). The GTM Data Excellence, Segmentation, and Sales Excellence modules are complete and well on track. A Guide to Operations Excellence training by Peter Brokensha was completed for Operations personnel.

Ex-brewery pricing increased with effect from October 5, 2009:

• Nile/Club price increased from 25,900/= to 27,800/= per case or 7.3%;
• Eagle Lager price increased from 19,800/= to 22,300/= per case or 12.6%;
• Eagle Extra price increased from 22,200/= to 24,700/= per case or 11.3%;

Retail pricing increased as follows:

• Nile/Club RRP increases from 1,600/= to 1,800/= per bottle, representing a retail mark-up of 22%, and an increase in the RRP of 200/= or 12.5%: this is to correct historically low and unrealistic recommended retail margins;
• Eagle Lager RRP increases from 1,100/= to 1,200/= per bottle;
• Eagle Extra RRP increases from 1,200/= to 1,300/= per bottle.

Worthmore pricing was not adjusted.
Distribution
Variable Costs/hl adverse due to:

• Adverse local/export sales mix due to lower export sales which carry no freight costs freight costs
• Adverse own versus 3rd party fl eet mix (Actros accident, timing of new vehicles) Technical
• The SAB taste panel results showed that Nile and Club consistently scored.

Technical

• The SAB taste panel results showed that Nile and Club consistently scored 8/10 or above, while Eagle Extra taste results were impacted by recipe changes. Macro beer loss was adverse due to recipe changes on Eagle Extra and adverse extract loss in Brew House C. Bottle breakages at 0.71% and packaging beer loss(1.12%) are well in control.
• New brew house and pack line commissioned June 2009, opened 6th August.
• The Manufacturing Way Organization Design was implemented.
• All Global Excellence in Manufacturing (GEM’s) Level 3 training done.
• HOD’s certified to roll out foundational GEM work practices.
• 50% roll out to shop floor of foundational work practices was achieved.
• Performance Improvement Project is progressing well, as follows:
• Energy usage: from 223 to below 175 Mj/hl;
• Macro Extract Loss: from 9.7% to 9.5%;
• Factory Efficiency: from 58% to 60%.
• Additional PIP’s launched include:
• Electrical usage: from 12.5 to 9.5 kwh/hl (target);
• Water usage: from 6.8 to 5.8 hl/hl (target).
• A team from hub conducted an Integrated Manufacturing Audit at NBL from 13-16 Oct 2009 – the hub-audited GEMS score came out at 2.31, versus the latest NBL self-assessed score of 2.32, up from the F09 baseline score of 1.82 (target for F10 is 0.5 improvement over F09 baseline score)

Finance
Volume was strongly up on prior year. This can be attributed to the Polish bottle launch, excise/price reductions, and new capacity.

• Gross Revenue & NPR up – volume growth, plus mainstream and economy brand price increases in F09 Q3.
• Unfavourable Cost-of-Sales: escalating raw material & utilities costs plus adverse USD foreign exchange rate impact: malt, hops, furnace oil, CO2.
• Adverse freight: local/export & geographic mix
• Marketing Costs up on prior due to increased spend in response to competition and to support new brand launches.
• USD results were adversely impacted by currency depreciation.
• Fixed costs up on prior – 2nd packaging shift

Human Resource

• Most Operations vacancies filled in July 2009
• Interim Go-to-Market structure in place from July 2009
• Annual Strategic People Resourcing (SPR), People Balance Sheet (PBS), HR Review & Remuneration Committee completed in March 2009.
• The annual salary review completed: grades I/J/K gap to market median closed
• Ken Wanyoto reappointed Human Resource Director
• New Sales and Distribution Director appointed, Mike Benjamin, in line with GTM strategy
• CAP competence is still lagging behind target of 55% because of all-new Manufacturing Way competence guides
• During the OE Survey conducted in August 2009, our score improved from 75% in 2008 to 77%

Corporate Affairs

• Excise lobbying: status quo on malt and non-malt excise at 60% and 20% maintained
• New rate of 40% excise for beer made from locally grown and malted barley announced

CSI F010: HEALTH - “From grain to glass”:

Reputation:

• The Talking Alcohol.com website was launched at a press conference in April 2009, supported by newspaper ads & billboards.
• A 3D “Do Not Drink & Drive” campaign was launched at a press conference on 10th September in Kampala to support our “Responsible Drinking” sustainable development initiative; the campaign will employ billboards located at busy city intersections to remind drivers about the dangers of getting behind the wheel after drinking.
• Training in alcohol awareness & responsibility (ABC & AIQ) has commenced for all NBL employees (with 22% of employees trained so far), as well as retailers in both sales regions.
• NBL received a commendation in Washington DC on 24-6-09 from the Global Business Coalition on HIV/AIDS for its work in the value chain.

Farming:

• Commercial sorghum growing successfully piloted on 475 acre- Amuru Farm, in Amuru district, as a start of new sorghum sourcing model. Half a dozen commercial farms and several farmer groups now contractually signed up to grow in 2010.
• Barley growing to meet the malting requirements started in Kapchorwa, Kabale and Kabarole.
• Entrepreneurship training extended to 214 farmers, bringing the total trained to 528.

Nick Jenkinson
Managing Director
Nile Breweries Limited