| Real sector yet to benefit from
banking consolidation
– Mr George Coumantaros, chairman, Flour Mills of Nigeria
Plc
By OMODELE ADIGUN
Monday,
September 17, 2007
|
Coumantaros
Photo: Sun News Publishing |
|
For a long time, the rumour mill had it that the manufacturing
and other subsectors in the real sector of the economy have
not been getting a fair deal from the nation’s banks
despite the fact that the real sector is the backbone of the
economy. Many had reasoned then that the problem might not
be unconnected with the low capital base of the banks.
But now that the banking sector has graduated into mega status,
the real sector probably thinks that their days of sorrow
are gone for good, going by the look of things. But the Chairman
of Flour Mills of Nigeria Plc, Mr George Coumanta-ros, seems
to be saying the opposite.
According to him, manufacturing industries are yet to derive
any substantial gain from the banks in terms of interest rates
on their loans which continue to remain high.
His words: "The liquidity situation in the Nigerian economy
has vastly improved, thanks to the reform and consolidation
of the banking industry, a bold initiative of CBN which was
concluded in December, 2005. Banks now have more funds at
their disposal to lend to the real sector. However, industry
is yet to derive any substantial gain in terms of interest
rates which continue to remain high."
Chronicling the problems bedeviling the sector, he said: "We
believe that the lack of improvement in public power supply,
further deterioration of the railways and road infrastructures
and the worsening of the security situation in the country,
particularly in the Niger Delta, are some of the monumental
challenges and issues which government must tackle as a matter
of priority. A major improvement in these areas will undoubtedly
promote a more friendly, stable and healthy business climate
in Nigeria and encourage the inflow of foreign investment."
Despite the difficult operating environment, Coumantaros explained
that the company is able to hold its head above water. In
this piece, he explains how the company has been operating
as a world class food manufacturing company in a class of
its own.
The company
Flour Mills of Nigeria was incorporated as a private limited
liability company on September 29, 1960 and was converted
to a public liability company in November, 1978. The Group
is primarily engaged in flour milling, pasta production, importation,
blending, distribution and sale of fertilizer. Other businesses
of the company are manufacturing and marketing of laminated
and woven polypropylene sacks, operation of terminals A and
B at the Apapa Ports, sale of bulk and bagged cement, customs
clearing and forwarding agents, shipping agents and management
of Maiduguri Flour Mills Limited.
Performance
Our group of companies made good progress and achieved sustainable
growth in a highly challenging and competitive business environment.
Group turnover rose by 22 per cent to an all-time record level.
It went up from N86.6 billion to N105.7 billion. The group’s
profit before taxation was up from N6.3 billion to N9.8 billion.
The group’s profit after tax and minority interests
rose from N4.7 billion to N7.5 billion.
The company also achieved a remarkable performance. Turnover
went up by 41 per cent from N64.8 billion to N91.1 billion.
Profit before taxation rose impressively to an all-time record
of N7.3 billion, an increase of 70 per cent over the N4.3
billion achieved in the preceding year. After tax profit went
up from N3 billion to N5 billion.
The remarkable improvement in our results is a reflection
of increases in throughput, improved operational efficiency
of the new mills, gains accruing from the commissioning of
our gas plant, synergies arising from the absorption of Golden
Fertilizer into a division, better utilization of human capital
resources and the positive impact of our cost minimization
strategy.
On the strength of our impressive financial performance, our
shareholders are to get a record dividend of close to N1.4
billion, an increase of 41 per cent over N990.08 million declared
last year. This translates to a dividend of 90 kobo per ordinary
share of 50 kobo compared with 65 kobo (adjusted) per ordinary
share in 2006.
We are comfortable with the dividend growth and with the level
of dividend cover which are broadly in line with the growth
in earnings per share. More importantly, the directors of
the company are mindful of the company’s huge capital
commitments and the need to properly fund the growth of our
business.
The company is the proud winner of The Exchange’s 29th
Annual President’s Merit Award for the 2005 financial
year – Foods and Beverages sector - which was presented
to us at a colourful ceremony in November, 2006. The President’s
Award is bestowed on quoted companies that have performed
excellently, transparently, efficiently and with high sense
of integrity during the past year. We are very pleased with
the honour which we view as a challenge to work harder in
order to meet the high standards that are expected from listed
companies.
Business in Nigeria
The Nigerian economy, which is still grappling with the problem
of inadequate infrastructure, made modest progress last year,
judging by trends in certain economic indicators like GDP
growth, inflation rate and the exchange rate.
The Gross National Product rose from N11.983 billion in 2005
to N14.854 billion in 2006 representing a nominal growth rate
of 28 per cent and a real GDP growth rate of about 6 per cent.
Inflation rate which was about 18 per cent in January, 2006
dropped in December largely as a result of the favourable
impact of Central Bank of Nigeria’s monetary policy.
The relative stability in the exchange rate of the Naira vis-à-vis
the US dollar is encouraging to investors. Naira exchange
rate stood at an average of N128.00 to $1.00 between 2005
and 2006. The stability was partly driven by the effective
management of the foreign reserves which grew from a level
of $32.9 billion at the beginning of 2005 to $41.9 billion
by the end of 2006. Although earnings from crude oil dropped
as a result of disruption in the Niger Delta which led to
a fall in crude oil production, there were substantial gains
in the non-oil sector which grew by about 10 per cent. This
was in addition to an appreciable increase in direct foreign
investment inflow due to improved investors’ confidence,
owing to the country’s increasingly positive profile
on the international scene.
The liquidity situation in the Nigerian economy has vastly
improved, thanks to the reform and consolidation of the banking
industry, a bold initiative of CBN which was concluded in
December, 2005. Banks now have more funds at their disposal
to lend to the real sector. However, industry is yet to derive
any substantial gain in terms of interest rates which continue
to remain high.
We believe that the lack of improvement in public power supply,
further deterioration of the railways and road infrastructures
and the worsening of the security situation in the country
particularly in the Niger Delta, are some of the monumental
challenges and issues which government must tackle as a matter
of priority. A major improvement in these areas will undoubtedly
promote a more friendly, stable and healthy business climate
in Nigeria and encourage the inflow of foreign investment.
Quality control
During the year, our ultra-modern Quality Control Laboratory
was equipped with improved facilities and high precision equipment.
An amylograph machine was acquired to check quality of cassava
flour intake in order to ensure full compliance with specifications
laid down by the Standards Organisation of Nigeria.
Our technical experts performed baking demonstrations in different
geographical zones of the country and offered technical support
to numerous bakers as regards the proper use and the right
blend of "Golden Penny" flour. The Master Bakers
Association which was obviously delighted with the favourable
impact of these efforts on baking standards, bestowed a "Product
Quality Consistency Award" on the company.
Our technical team attended training programmes and highly
rated courses in South Africa, Germany and India to gain additional
skills in vitamin analysis. The skills acquired will be helpful
in monitoring the mandatory vitamin fortification process.
Golden Penny Flour
Our flagship product, Golden Penny flour, made good progress
in the face of tough competition in a market which has huge
potential for growth.
During the year, we completed the refurbishment of 50 per
cent of 50kg packing and loading infrastructure, the remodelling
of our ‘F’ mill and the erection of additional
wheat storage. This is a continuation of our mill refurbishment
and modernization programme which has increased our capacity
and has brought about a complete transformation of our mill
in terms of configuration, technology, effectiveness and efficiency.
The main constraints we are having towards the optimum utilisation
of our enhanced production capacity are inadequate transportation
together with its high cost and inadequate power supply. We
would continue to strengthen our core business by investing
in new mills, new technologies, ancillary equipment and facilities
as part of our strategy to enhance long-term growth.
Power generation
The successful commissioning of seven Jenbacher gas powered
generators with a total generating capacity of 21 megawatts
in May, 2006 was a giant stride towards achieving the company’s
goal of running the mills, production facilities and ancillary
services with minimum power interruption.
We have started to reap the benefit of our valuable strategic
investment in power generation. The partial switch-over from
diesel to gas has resulted in higher efficiency while the
company’s operating environment has become cleaner and
more friendly. We are going to achieve substantial savings
in cost which will enhance the competitiveness of our business
and maximize returns to stakeholders. Our main challenge remains
the ability to secure regular and uninterrupted gas supply.
United Cement Company of Nigeria Limited (UNICEM)
The construction work at the site of the Greenfield Cement
Plant in Mfamosing near Calabar in Cross River State, is progressing
steadily. Over 60 per cent of the civil works have been completed.
It is expected that the first kiln would be fired in April
2008 while full operation is to commence by the end of the
second quarter of 2008.
The disbursement of the syndicated loan by our bankers is
going on satisfactorily. A key issue of concern which is receiving
management’s attention is the construction of a gas
pipeline to the plant. When completed, the cement plant with
an annual production capacity of 2.5 million tons, will boost
the economic activities of Cross River State and the neighbouring
states.
We are confident that Unicem will leverage on the global industrial
experience of its technical partners to produce cement of
international standard.
BAGCO
During the year, BAGCO, a wholly-owned subsidiary company
of Flour Mills of Nigeria Plc, delivered good growth in sales
and profitability to consolidate its position as the leading
laminated and woven polypropylene sack manufacturing plant
in Nigeria.
The on-going expansion, refurbishment and modernization of
the factory and production facilities will continue. Additional
capital investments amounting to N1.9 billion covering buildings,
equipment and utilities were made during the year under review.
These investments, which are aimed at building a strong platform
for future growth, produced some strains on BAGCO’s
cash flow and some negative impact on the bottom-line. However,
the company plans to capitalize on its improved capacity and
new technology to enhance its position as a world class manufacturer
thereby opening the door for exports.
Human capital development is a priority and efforts are continuing
through the year to train and employ quality personnel for
sustainable growth.
The current financial year will witness more developments.
A new spaghetti line and a new product line will be launched.
New packaging materials for our products are being developed
to meet with the current trends. These are dynamic and innovative
measures that will add significant growth to our business
and boost profitability.
Apapa Bulk Terminal Limited
ABTL, which is a wholly-owned subsidiary, commenced port terminal
operations in April, 2006 following the two concessions granted
to the company to operate Terminals A and B of the Apapa Ports
Complex for a duration of twenty-five years.
The company started on a good footing in its first year of
doing business with a cargo throughput of 3.7 million metric
tones.
Work on the rehabilitation and construction of the infrastructure
and other facilities have started in earnest. We have put
in place terminal perimeter fencing and access control management
process in line with the requirements of JSPS Code.
Dredging of the channel to a depth of 12.50 metre chart datum
is in progress. Its completion next December will enable vessels
drawing 11.00 draft to berth at ABTL’s terminals. This
will further enhance cargo throughput and the terminal can
operate in a most efficient, cost effective and profitable
manner and add considerable value to port users and stakeholders.
Niger Mills Company Limited, Calabar
In spite of stiff competition in the market place, Niger Mills
continued to grow its share of the market. Its wheat products
have gained high market acceptability while new markets are
being explored. The quality control capacity of the company
has been strengthened to ensure that the high customer expectations
are met and surpassed.
Turnover increased from N2.6 billion to almost N3 billion.
Profit after tax, however, dropped from N62 million to N43
million mainly as a result of the increase in operational
costs, which was not fully matched by a similar increase in
the ex-factory price of finished products.
Niger Mills has embarked upon an expansion programme to achieve
greater volume, which would strengthen and consolidate its
position in the East and enable the company to tap the potentials
being created in the North-Central and North-Eastern markets.
Construction of silos is almost completed while civil and
mechanical works to expand the capacity of the main mill have
started in earnest. It is highly likely that the May, 2008
roll-out date would be realized.
Flour Mills of Nigeria Plc increased its interest in the equity
of the company from 85 per cent to 98.75 per cent during the
year. This strategic move will put Niger Mills on a good platform
for accelerated growth.
Corporate social responsibility
The main thrust of the company’s social responsibility
is caring for the community. Our focal points during the year
include educational programmes, health services, social welfare,
infrastructural development, environmental improvement, road
maintenance, drainage and traffic flow.
Repairs and remedial works were carried out on Wharf Road,
Apapa. In addition, we reconstructed drainages along a stretch
of Wharf Road, Apapa at a cost of N30 million to check the
adverse impact of flooding in this area.
Recently, Flour Mills of Nigeria Plc, in partnership with
the Federal Road Safety Commission (FRSC), launched a major
initiative to achieve free traffic flow on Apapa roads, which
regularly experience severe traffic congestion that adversely
affects the movement of goods, people and the level of economic
activities.
In July, 2007, the company supported FRSC with logistics by
providing it with vehicles, motor bikes, communication equipment
and other ancillaries. This gesture will go a long way to
assist officers of FRSC to effectively patrol Apapa highways
with a view to ensuring free traffic flow and bring about
considerable relief and comfort to motorists, road users and
the entire Apapa business community.
Through activities like these, Flour Mills of Nigeria continues
to demonstrate its strong commitment and passion to improve
the lives and conditions of people and places within its business
community.
Human resources
Our company’s change process is progressing. Employment
categorization and segmentation have been concluded and varied
forms of employment have been so introduced. The company’s
policy has therefore been reviewed in line with the outcome.
Performance qualities and targets have been set for employees
in all key areas which will enable objective assessments of
employee performance and consequently reinforce culture of
high performance in the company.
Competence gap and improvement in skills and efficiency are
currently being addressed by training and retraining of personnel
both locally and overseas. Development programmes which are
focused on the future skill levels are also being implemented.
Our HIV/AIDS policy guidelines are in place and employees
are encouraged to undertake voluntary counseling and testing
in order to confirm their HIV status. Continuous interactions
at workshops with known HIV positive individuals are arranged
to encourage staff to eliminate discrimination and stigmatisation.
We appreciate the value of safe work environment to business
success and therefore embark on periodic assessment by experts
to ensure compliance and safety of employees. Employees are
continuously sensitized and counseling on safe work procedures
precede the commencement of each shift in the operational
areas.
We continue to promote good and harmonious industrial relations
which we truly believe is essential to progress. The quarterly
interactions between staff and management now serves as a
good platform to disseminate information, discuss company’s
policy and programmes, performance, problems, progress and
welfare. This has helped considerably to bridge information
gap, improve understanding and promote cordial relationship
between management and our staff.
I like to praise the management and staff for their hardwork,
loyalty and commitment which has contributed immensely to
our good financial performance.
Future plan
There is no doubt in my mind that we have achieved a very
good growth in our business momentum which we intend to maintain.
We have a tight focus and defined strategies to improve product
quality, identify new products and business opportunities
and keep our market share on an upward trend during the current
year and beyond.
We are firmly committed to getting closer to our dealers,
customers and bakers. We are going to strengthen our partnership
with them to foster innovation in all our products and in
all areas of our business. We shall be more effective and
efficient in every aspect of our operations. As we look to
the future, we are optimistic that our rising business momentum
will continue and enable us deliver very good results to the
delight of all stakeholders.
I take this opportunity to thank the nation’s bakers,
the loyal and steadfast customers of our flour products, spaghetti,
macaroni and other pasta products, Burham Cement, fertilizer,
BAGCO supersacks and all users of our ports terminals. |
