September 7, 2018/Cordros  Update

Key take: There was a lot of emphasis on sales in this year’s forum. What is clearly priority going forward, according to management, is to drive for the sustenance of market leadership in a challenging operating environment and increasingly competitive market. Most of management’s presentation centred on winning strategies, including through innovation, stronger national and regional coverages, brand portfolio expansion, stronger partnership with distributors, affordability, etc. For context, this year’s forum included a Market Visit (it’s previously been a Brewery Tour), through which management gave insight into how it is driving route-to-market by supporting retailers through the provision of better-modelled sales platforms.

Strategy to win

• Expand leadership in the premium segment   

       I. Focus will be on Heineken and Tiger (lager, launched early this year)

      II. Push for national rollout of Tiger, while ensuring that Heineken remains broadly accessible

     III. For Tiger, the size (45cl) and price point (NGN200/bottle) are expected to support affordability

    IV. Tiger is/was (1) an international brand, (2) targeted to excite the younger Nigerians, (3) launched solely in Lagos for now, / (4) a success in Asia – Singapore and Indonesia 

• Build scale in mainstream segment 

       I. This remains the core of NB’s business

       II. Ensure portfolio remains strong 

• Non-Alcoholic 

       I. This segment has suffered in recent years

      II. But NB still leads the space, with Maltina and Amstel Malta

     III. Potential of this category is big in Nigeria, owing to the consumers’ affection for malt drinks 

• Stout 

      I. NB is strong in this space, but not the market leader

     II. The segment’s potential is also considered strong and generally expected to grow 

• Route-to-market 

     I. Key is to win at the retail end

    II. Increase partnership with distributors. e.g. with incentive scheme recently changed from buying to selling

    III. Increasing play in the open markets

    IV. Promotions now more important than they were a few years ago 

Improvement of productivity

• Revenue management, via: 

      I. Promotional optimization

     II. Discounts and trade terms

    III. Brand portfolio and mix management 

• Cost optimization, via; 

     I. Driving synergies from the M&As of recent years

    II. Fleet management

   III. Financing and funding 

Products/Brands

     I. Recent brand performance – from volume perspective – was affected by Malt

    II. Lager is going well

   III. National premium brands have suffered a little for price reasons

   IV. Regional brands are doing well

   V. Some brands have been frozen in the last year. STELLA has been tested and now taken back to better understand the consumers. The brand is still in the test phase

   VI. There could be other premium brand offerings in the near term

General Issues

• About 60% of raw materials (cereals) are currently locally sourced – 250,000 farmers indirectly employed by NB

• Packaging materials are currently 100% locally sourced

• Double-digit volume growth recorded for Heineken

• Premiumisation is key for NB

• Cost savings will be reinvested in brands and top-line

• The current excise duty system is preferred over the former ad valorem tax structure. It’s more predictable and helps in planning.

• Management is clear on what the excise duty would be in the next two years and do not expect any variations, based on guidance from government

• Total excise duty increase for NB expected to be roughly 14%

• Focus going forward is on price intelligence, not price leadership

• Improved FX liquidity and stability key to the low finance cost recorded in Q2-18. FX liquidity helped in the repayment of some local USD loans

• Current SKUs and product portfolio not excessive (thus addressing the concern about cannibalization), more so, given the geographical diversity of the Nigerian consumer

• NB will NOT invest in spirits