MILLING ABOUT

Nigeria 2016 | AGRICULTURE | INTERVIEW

TBY talks to Paul M. Gbededo, Managing Director of Flour Mills of Nigeria (FMN), on the health of the sector, a bid to raise capital, and expectations for the future.

Paul M. Gbededo
BIOGRAPHY
Paul M. Gbededo graduated from Loughborough University of Technology in the UK, and has occupied a series of senior positions in a multitude of FMN companies. Positions include Plant Manager/Director at Golden Fertilizer and GM/Director of Golden Pasta and later Golden Penny Rice. He has also acted as MD and now Group Managing Director of FMN Plc.

FMN has been a key player in the agricultural industry and food processing for many years; what trends have driven the company's growth over the past five to ten years?

Our core business is food, and we started wheat milling over 50 years ago. We started with one mill producing 500 metric tons per day. Today our capacity has grown to 10,000 metric tons per day and we can confidently say that we are one of the biggest flour milling operations in this part of the world. Over the decades, we have diversified, rather than limiting ourselves to the production of flour for the bread baking and confectionery industries. In 1972, we established the first plant for producing pasta in Nigeria. Today, we are the biggest pasta manufacturing company in Africa. FMN has further diversified in the recent past into the production of noodles, snacks, and breakfast cereals that primarily use locally sourced ingredients. Currently, we are also the largest agro-allied company in the country. Our strategy is to develop value chains, particularly with crops where we have a comparative advantage in Nigeria. We aggregate corn in this country from local farms and process it into animal feed and have developed our animal feed business to become the biggest in sub-Saharan Africa. We have animal feed processing plants in Ibadan, Sapele, and Calabar with a combined output of 700,000 metric tons per annum, making it the largest in sub-Saharan Africa. As we produce animal feed, we are also keen to develop our poultry operation. In addition, we have a sugar refinery in Lagos, which has a capacity of 750,000 tons per annum, and due to the National Master Plan we have developed sugar estates and a vegetable oil and margarine processing facility by ROM Oil, an FMN subsidiary company. Our strategy is to ensure that we strengthen our core food business through diversification of our business by going downstream, and also supporting our business through the agro-allied businesses by expanding the value chains that will help to sustain and develop local content.

Earlier this year you sold your cement business to Lafarge. What drove that decision?

In order for us concentrate or expand our two portfolios in the food business and in the agro-allied business, we decided to divest from cement, where we are just partial players. Formerly, we had held around a 30% stake in UNICEM from Calabar Cement, and Lafarge and Holcim were holding the balance of 70% and, from the moment they merged in 2014, we were at a terrible disadvantage. It was natural that we would then divest and concentrate on our core business.

How would you characterize your performance and the health of the sector for 2015?

Most of the bottom line profit came from the sale of our cement operations. It was otherwise a tough year. There were the issues of irregular gas supply, intense gridlock in Apapa due to tanker drivers' strikes, and the naira devaluation. We depend on imports, so that was wiping out our bottom line. Also, the entire north-east of Nigeria in the three states of Yobe, Borno, and Adamawa, were totally cut off because of the insurgency activities and so on. People were displaced, and so the market all but collapsed in those places. So with these issues it was obvious that we could not maintain our top line or grow. We should be commended for any result that we got, because under similar circumstances, many companies would have been wiped out.

How was FMN affected by the Forex restrictions on imports recently issued by the Central Bank?

I support the decision, especially for the restrictions on rice, which we should be producing here ourselves. However, I think the Central Bank should be very clear and let us know what the monetary policy is with regard to foreign exchange and help the businesses, manufacturing, industry, and investors to know exactly where they belong. Otherwise, if we do not have consistency, we do not have confidence in the direction that the monetary policy will go, and it will be difficult to plan and hard for investors to enter the market.

You recently announced that Flour Mills would seek to raise capital; what would be your preferred method of access to capital and where would the funds be invested?

We are highly leveraged because of the investments that we have made, especially in the agro-allied space in the last five years, and it has raised our debt profile. We are under the weight of high interest payments and that is what we plan to address. In order to do that, we have to source our funds from areas other than banks, and that is why we are planning a rights issue. The rights issue will give opportunities for our shareholders to support the company and help the company lower its debt profile. That will also confirm the confidence of shareholders in the company, who know that the company is undervalued in the stock market and that this is the time to take advantage.