Monday, 1 July 2019

Coffee with Nestlé North East Africa Chairman and CEO Moataz El Hout

Coffee with Nestlé North East Africa Chairman and CEO Moataz El Hout: For over 100 years, Nestlé has been present in Egypt, giving it a unique incite among foreign companies operating here on the Egyptian economy and consumer. Some of its goods and products are household brand names, including Maggi, Pure Life, and Nescafé. Through the good and bad times, the company has held on to its presence as a leader in the market and continues to expand upon it. In January, the company inaugurated its EGP 250 mn 6 October factory for its coffee brand Bonjorno, and has pledged EGP 1 bn in investments over the coming five years. Nestlé’s Egypt operations are led by Moataz El Hout, who recently sat down with us for the latest installment in our Coffee With… series.

Who is Moataz El Hout? As someone who has been with Nestlé for 24 years, you would be hard pressed to find someone who knows the ins and outs of the Swiss multinational and its presence here more than El Hout. His long career with the company includes heading up its ice cream business in Egypt and Malaysia, before going on to becoming country manager in Ghana. He became Chairman and CEO of Nestlé North East Africa in January 2018, where he has been overseeing the company’s ambitious growth plans as volumes in the fast moving consumer goods sector head towards recovery.

Key takeaways from our conversation:

  • Most of the EGP 1 bn in new investments pledged over the next five years will go towards building up capacity;
  • Nestlé Egypt will see volumes across all product lines going back to pre-2016 levels by the end of the year;
  • Production and logistics efficiencies have made Egypt a key node in Nestlé’s global supply chain;
  • Coffee is Nestlé’s biggest product category in Egypt;
  • As a multinational, capex spending was not really impacted by the high interest rate environment;
  • On the macro-level, Egypt’s economic reforms have been conducive to growth, but issues with red tape remain.

Enterprise: You had said that Nestlé is planning to invest around EGP 1 bn in Egypt over the next five years. Is that still the number and can you please elaborate on those investments?

Moataz El Hout: yes, I can confirm the figure. Nestlé has been in Egypt for a long time — over a hundred years — through the good and bad times. The company has considered the country one of its growing markets and currently, Egypt is a strong contributor to growth in the Europe Middle East and North Africa (EMENA) region. We see opportunities here for us that we plan to capture by investing on our capacities (people, warehouses, facilities, etc.). We have an ambitious growth plan that will need to be supported by the right investments.

Enterprise: How are these investments spaced out and are they going towards operational expenses or capital investments?

Moataz: We’ve spaced out that EGP 1 bn over five years to give us manoeuvrability in deploying the investments where and when they are needed. Depending on market conditions, we will need to prioritize certain categories of products. In our work it is tough to look far ahead and pin down which category would need investing, so it would be tough to set a timetable to deploy it.

Moataz: Some of these investments will also go towards developing new products. But the majority will go towards capacity increases and raising our utilization rates for certain product categories. We also push for these capacity increases to go towards exports. This year, for example, we began exporting Cerelac to Morocco and Tunisia. Why did Nestlé assign those markets to us? Because here in Egypt, we have a factory that is world class and is one of the top two factories in our zone. This is our 6 October factory which produces goods in multiple product categories. It’s where we also produce Nescafé and Nido.

Enterprise: What was your strategy for growth in 2019 and what will it be in 2020?

Moataz: 2019 was about volumes. Volumes for fast-moving consumer goods took a big hit with the EGP float in 2016, and it was hard for those companies to grow their volumes in 2017, because of the price increases. The target for most of those companies was to go back to the volume levels we had before the devaluation. We at Nestlé Egypt are on track to do that this year. We’ve already gotten volumes for some product categories up to pre-float days prior to this year, but in 2019 we are on track to get volumes across the board back to 2016 levels.

Moataz: How did we achieve this? We expanded the distribution of what we at Nestlé call our popular positioned product (PPP) range. These are mainstream products that are marketed to all income levels. Take the Maggi cubes for example. We sell three of those cubes for EGP 1 and we’re making good money on it. Part of our strategy this year was maintaining our prices on certain product categories and not pass those on to the consumer, who took a huge hit with inflation. We have managed to maintain our pricing even in the face of rising fuel and electricity prices, because these were expected and predictable. These were not surprising, and on the contrary, have been helpful as we could strategize and adapt through cost-saving measures and improving efficiencies. This strategy is now being helped with the appreciation of the EGP.

Moataz: Concurrently, we have also been focused on launching new products across various categories, such as Nescafé Milky, Bonjorno Talkima, etc.

Enterprise: Are there any acquisitions in the works?

Moataz: Nestlé has always been active on the acquisition front in Egypt. For example, we added the Kimo ice cream and yoghurt brand to our lineup back in 1989. Then we acquired Baraka water, and Dolce ice cream came in 1995. More recently, we acquired the Bonjorno brand in 2017, which is going very well for us. It’s a fantastic company, built by a fantastic Egyptian entrepreneur — Mr. Amr Barakat — who entrusted us with his company, which is doing very well. I obviously cannot reveal anything we’re looking at now, but I can say we are very open and are always looking to complement our exceptional range of brands with additional opportunities.

Enterprise: Where does Egypt fit in in terms of Nestlé’s global strategy?

Moataz: Nestlé sees Egypt as a high growth emerging market opportunity. Egypt’s GDP is growing at 5.6%, which we don’t see anywhere regionally anymore. Obviously, the Egyptian consumer is under pressure because of inflation, but by and large, Egyptians spend 50% of their income on food. But we are coming back and we have been growing with strength over the past few years. That’s why Nestlé sees us as an important growing market and we are delivering on those expectations. Just to give you an idea of how important Egypt is to the company, our global CEO will be here in early October to visit.

Moataz: Bear in mind also, that Nestlé has been a globally-oriented company from the start, and that’s largely been out of necessity. Unlike US companies, which have a large local market, Nestlé, is a Swiss company that has had to look abroad, since Switzerland only has a population of 7 mn. So part of the company’s growth story is tolerating some of the risks in high opportunity markets such as Egypt.

Enterprise: Does Nestlé see Egypt as an export hub to the region?

Moataz: I wouldn’t characterize it as such. Nestlé operates as a global supply chain network, where different nodes are called in to supply others depending on capacity. So Egypt is exporting goods to certain regional markets because we are more efficient than any other market. We currently export roughly 10% of our total volumes.

Moataz: That said, our exports are growing. Besides Morocco and Tunisia, we are in the process of exporting cappuccino from the Bonjorno factory to Europe.

Enterprise: What products are you focusing on in Egypt in 2019 and 2020?

Moataz: Globally, Nestlé focuses on four key product categories: coffee; nutrition (infant formula, for example); water; and pet food. Here in Egypt, coffee is our biggest business and is growing strong. Water is also a very strong business for us here. On the nutritional food category, we gained market leadership in Egypt last year. The pet food category is really small, but it is also showing growth.

Moataz: For coffee, we really managed to tap into a growing trend, something that is evident when you look at per capita coffee consumption here. Egypt is traditionally a tea drinking nation. For every cup of coffee we drink, there are 20 cups of tea that are being drunk. Coffee as a beverage is increasingly becoming trendy, with the consumer developing a better palate and appreciation for it. This is especially true among young consumers. And now we’re seeing the trend moving towards coffee drinking. Introducing a great tasting product is a big part of how we see ourselves growing.

Enterprise: If we can segue into how Nestlé has been adapting to the macro climate in Egypt. How have sales and margins been since the EGP float and in a high interest rate environment?

Moataz: Both volumes and margins took a hit after the EGP float in 2016. Value-wise, the business was growing in the double digits in 2017, but our business is mostly about volume growth. As we noted earlier, volumes have started to recuperate in 2018 and we are very happy about 2019. We took drastic cost reductions, and in the end, we passed on to the consumer only what we had to. This effort saw our margins decrease, because while we did raise our prices on some products, these price increases were not high enough to keep our margins at their levels pre-float. I am very proud with what the team managed to accomplish in 2017, which was a very turbulent year for the sector.

Moataz: As far as the high interest rate environment goes, as a multinational company, our access to funding was never a problem because we had the support of our parent company. So capex spending has not been impacted that much by interest rates.

Moataz: Beyond interest rates, having the parent company was helpful when access to FX was a problem here in Egypt. Because the restrictions on FX, we were finding it difficult to pay suppliers. Tapping into this global network helped greatly in that area.

Enterprise: So it is safe to say that there are currently no problems accessing FX or repatriating profits?

Moataz: This is not something that I follow at all nowadays. From 2015 all through the end of 2016 access to foreign currency was restricted. Throughout that period, we had prioritised paying suppliers. So this led to us accumulating a lot of dividends and royalties owed to the parent company. I can say now that we have cleared everything and we owe the mother company absolutely zero. So this is no longer a problem on our radar.

Enterprise: Do you see this rise in your volumes and utilization rates reflected sector-wide?

Moataz: The clear short answer is yes. Having said that, this is not the same for all food categories. For example, one of the segments that did not really lose any volumes was Maggi, because they were so affordable and also essential. Pretty much, this was the only segment that didn’t see their volumes contract. Most categories contracted. Consumer spending is still under pressure. But we operate in categories that consumers tend to prioritize. Part of how Nestlé got its volumes up was by investing in two coffee production lines. Utilization is coming back, and so are investments and capex as well.

Enterprise: It seems a lot of problems have been scrapped from your worry list.

Moataz: A lot of the problems that have to do with the fundamentals of the economy have been taken care of. Whether this is as far as accessing foreign currency, repatriating profits, or access to capital. We now have predictability. A lot has improved in some areas, but we still face problems in other areas.

Enterprise: What are the biggest challenges you are facing?

Moataz: These primarily have to with red tape and the ability of the bureaucracy to keep pace with the reforms. But to sum it all up, we can say that on the macro level and on the management of the economy, there was a lot of reforms that we were very happy with. On the other hand, we continue to face daily, weekly operational challenges that are hindering us from capturing the full opportunities out there, whether they be in the local market or the export market. And that’s where it hurts.

Enterprise: Back in the 90’s or 2000’s multinationals like Nestlé was where the young workers wanted to go. Now we’re kind of seeing it slowly transition into Egyptian companies and even into startups. Is this is a trend you are seeing? Has it been harder to recruit talent?

Moataz: I can’t say it has been harder for us to recruit young people coming straight out of university. But you can say that mid-career you see people leaving for startups in the sector. But we get plenty of people coming out of universities, so we can be very selective about who we want. We also have a summer internship program that will start in a couple of weeks that will give us exposure to a diverse talent pool. Our candidate selection has also been diversified. We’ve been hiring from 12 or 13 institutions. GUC and AUC are no longer the only places we shop for talent. Same goes for vocational training graduates.

Enterprise: For our readers who are not familiar with you: In your own words, can you tell us about your history with the company, and where you got your start? And how you became the chairman CEO of Nestlé Egypt?

Moataz: I have been with the company for some 24 years. I joined Nestlé at the end of 1995 as a brand manager for Maggi. I did that for 18 months and then I moved to Nestlé Australia, where I did a couple of years as a brand manager in ice cream — the beginning of a 14-year career working with Nestlé’s ice cream brands. After Australia, I came back to Egypt, where I continued to work with ice cream until I became GM of the ice cream business in 2002. In 2005, I went to Malaysia to head the ice cream business there. In 2011, I became country manager for Ghana for four years, and I returned to Egypt again in 2018.

Enterprise: That’s a long time to be part of one company.

Moataz: It is not unusual to find people spending that amount of time in a company like Nestlé. I think what helps us retain people for that long are our values, which are rooted in respect. Respect for ourselves, respect for society, respect for customers, and respect for the consumers. This is a crucial element to the culture of Nestlé, which is present in a lot of countries. We try to not be flashy, and show each country we operate the respect it is due. Nestlé is Swiss after all. Modest and understated.

Enterprise: What’s the best business advice you’ve ever gotten?

Moataz: I don’t know if it is the best business advice but the best advice I ever received was to be yourself, but with more skills. Got that from business school.

Enterprise: What is your morning routine?

Moataz: Not exciting at all. We try to have a little family time in the morning consisting of short conversations with my wife and kids (because everyone is trying to get ready) on how their day is looking. After the kids leave for school, I read Enterprise over breakfast, then it’s off to work.

Enterprise: What coffee do you drink?

Moataz: Nespresso. I drink three to four Nespresso’s a day. Nespresso is my favourite coffee.

Enterprise: What is the most interesting thing that you’ve read, watched or listened to recently?

Moataz: Honestly, the most interesting movie I’ve seen recently was ‘El Mamar’. The fight scenes in it were generic and over the top, but I really enjoyed the human stories in it.

Enterprise: What music do you listen too? Whats on your playlist right now?

Moataz: Oldies like Super Tramp and other stuff from the 1980’s. My 15 year old daughter is into Queen now (thanks to the movie), which I like.

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