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“A huge success”

Interview - August 16, 2012
Chief E A Ukpabi, Managing Director of Flour Mills Nigeria, speaks with Upper Reach about the company’s diversification and plans to increase cement production in light of an upcoming government ban on cement imports

We interviewed Mr. Robert Orya of the Nexim Bank and he emphasises the importance of the implementation of the ECOWAS treaty for full regional integration. He also highlighted the impact the integration will have on the manufacturing sector in Nigeria. Does Flour Mills align its future strategy to allow for this future expansion?

Of course. We would like to see this regional expansion. Our population works in our favour in such an integration. The manufacturers are not happy about this because a lot of people want to bring goods and services to Nigeria, and these goods and services are not originating from the participating countries – they are coming from other countries. They are being shipped to Nigeria because we have the market. But we think this is not fair; to bring things in to neighbouring countries from outside and then ship them into Nigeria. So if these goods were manufactured in the participating countries that would have been fine; but not if they are brought in from elsewhere. I do not think the tariff regime is in the interest of most manufacturing companies.

For manufacturers in general in Nigeria, do they have enough control over the Nigerian market to think about regional expansion?

Manufacturers want this regional market. We have the population, but we still need to move goods and services to the West African countries. It is important for us, manufacturers are very interested in cross-border trade, without unnecessary hindrances where you have to pay this and you have to pay that. Of course we should have tariffs, but we need to harmonise them. We need to ensure that what is coming from the different countries comes from those countries and is not being imported into those countries and then imported into Nigeria.

Regarding Flour Mills, your slogan reads, “responding to the needs of Nigerians since 1960”, so it has been open half a century. What is the main secret behind your success?

We started in manufacturing flour in 1962. Our main interest is that what we produce here is of high quality. With Golden Penny, quality is our promise. We started with one flourmill and now we have 22, but we are still very much on top. We started with 600 tons a day and sometime this year we will reach 8,500 metric tons in this location alone. Of course we have mills in many other cities. It is not easy to sell this quantity of flour, but because of our quality and our service we are able to do well. These are the two main key issues that have propelled us to where we are.

We have been able to continually increase and diversify our business because of our success. Whatever we get into we ensure that the quality is the best. We recently sold 30% of the bag company to the Nigerian public. We even export our packaging bags to the United States and to do this you know we must meet international standards.

We also make pasta products and many expatriates when they go back home, go with our pasta products in their suitcases because it compares favourably well with the pasta made overseas. Golden Penny pasta competes very well. We also control a large percentage of the fertiliser business in Nigeria and are moving into sugar refineries.

We are looking at integration and we have farms where we are planting a lot of sugarcane to support the refinery. We will mill the sugarcane at the farms and then bring the raw sugar to the refinery. This refinery takes off around August this year.

We proudly own the largest feed mill in sub-Saharan Africa and we are building a second feed mill to increase scale. Our operations are complemented with a viable outbound logistics unit that ensure effective transportation of our goods in addition to using rail when available. We currently have about 600 trucks.

We are in three main areas: food, agro-light and infrastructure. For the cement category, the government is just phasing out cement imports. We have a cement manufacturer with Lafarge and Hosen and we intend to bring in a second line to bring it to 5 million tons in the next three years.

In the food category, we want to have what we call a “Golden Penny Basket”. This basket offers our flour, semolina, snacks, and breakfast cereals, rice etc. With the basket, you have almost every type of food you could desire. With the flour milling operations, we have all along produced the raw materials for the food industry, but now we are going into the retail business which caters for the final consumer. It is our intention to go into breakfast cereals and snacks. As our competition tries to catch up with us we move into other areas.

We are doing our best to ensure we remain on top. Interestingly, Nigerians have a lot of respect for our company. In 2010 we went for a bond, we wanted 5 billion Naira but were able to raise 7.5 billion Naira. We still have 35 million Naira on the shelf. Last year in December, in spite of the government policies regarding tariffs which directly impacted on flour mills, Christmas festivity and its attendant cash out we went for a price issue and it was very successful. We needed 27 billion Naira and we got more than that, many shareholders invested in flourmills.

If you think about all the lines of business you just mentioned, how important is diversification in every business endeavour one embarks upon?

You must keep moving. You cannot remain in one business alone for 50 years. The more competition you have the more margins shrink. You cannot keep the company you had five years ago. Everybody wants to sell the same product, and they tend to cut prices. But I think diversification is the key. And more important, for us, we think that no matter what everybody thinks about oil, agriculture is the main thing in Nigeria. There is no way we can grow by 3% every year and provide jobs for people except if people go back to agriculture so that we can feed ourselves. Many international companies that went into farming in Nigeria have pulled out. We have a total of 27,000 hectares where we grow maize, sorghum, cassava, millet, and sugarcane. Unfortunately we cannot grow wheat in Nigeria at a commercial level. The yields are not economical. The Nigerian climate is good for growing maize. There is virtually no country in the world that is self-sufficient. We can grow maize and bring it to a level where we can export it. We are growing our agriculture business in an effort to make it profitable. Most industries are so mechanised that the number of staff is reducing, but growing the agriculture industry will provide more jobs and also allow us to feed ourselves.

The latest news is that the Nigerian Stock Exchange has recorded a temporary fall in your profits, but the seasoned market operators say that the company will be able to put a smile on the faces of stakeholders and investors in the third quarter. What are you planning to do to achieve that?

The main reason the profit went down was due to the fact that we are no longer importing cement. We went from 2 million imports to maybe zero. That is why the company is doing everything to compensate for what we would have got from cement import. That is why we are expanding into other businesses and going from wholesale to retail. We know that the consumer market is where we can make more money. Our pasta plant, by the time it is finished, will be the largest anywhere. The pasta company was a standalone company before. What we have done is to bring it into Flour Mills to make it a division of Flour Mills. For the shareholders, what they are interested in is the dividend. The dividend does not come from the group but from the Flour Mills company. So a number of our stand-alone companies are being brought into the Flour Mills and will be divisions. In these cases we will compensate for the loss due to cement import. What we were importing was about 2 million tons, and if we get back to 5 or 6 million tons, our share will still be about the same 2 million. So what we are losing from imports we hope to gain from the local manufacture. As far as we are concerned the decrease was temporary. Also, the feed mill is a really huge success. So the diversification will help us come back. We will be able to give our shareholders a good return.

Aside from the Unicem partnership with Holsum and LaFarge, are you looking to partner up with any other foreign investors in the future?

Yes, we are. We are prospecting and intend to partner up in the cement business. We are doing a lot of work in various areas and prospecting.

Flour Mills, being an enterprise of such magnitude, has a huge impact on the local communities. That is why you carry out a lot of CSR strategies. Which is the one you are most proud of?

If you come into Apapa – Lagos, Nigeria you see the roots. We have gone to schools and vetted a number of schools in the area. We have gone into hospitals and bought equipment for a teaching hospital. We have gone into a lot of schools, we have supported business schools. We also do a lot of charitable donations. I often get letters from the community commending Flour Mills for our corporate responsibility. We are helping the police and providing them with vehicles. Anything that can make this country really move.

You grew up in Flour Mills, you climbed the ladder here and are celebrating your tenth anniversary as managing director. What legacy would you like to leave?

To leave Flour Mills much, much better than when I arrived. I joined Flour Mills after university and I stayed. I have always seen it as a place where I could grow and fortunately I was given the opportunity here. If you think of what Flour Mills was ten years ago and what it is today, everybody marvels at the expansion in capacity and diversification and innovation in the buildings and offices and acquisitions. I am happy that I have been a part of it and that I am leaving the company much better off than when I first arrived. A lot of companies are dinosaurs. They are so big and then they crash. We are building this company in such a way that maybe for the next 50 years it will grow to be a real octopus in this country.