World Report

One of the biggest success stories outside the oil and gas sector is Flour Mills of Nigeria with activities ranging from wheat products to cement and fertiliser

series of acquisitions, amalgamations and buyouts have made Flour Mills of Nigeria one of the largest conglomerates in the country and one of its biggest employers.
In recent years, the company has recapitalised and made huge investments in rehabilitation and refurbishment to equip itself with new mills and state-of-the-art equipment. With its new plant, it will become the leading flour mill in the world in terms of capacity.

Flour Mills of Nigeria made huge investments in its mills, installing state-of-the-art equipment to improve quality and reduce costs.

In addition to providing flour and wheat products like pasta, the firm has diversified into providing bulk and bagged cement, fertiliser and woven polypropylene sacks for the domestic market. More recently it has been extending its activities into ports operations. Its subsidiary companies include Northern Nigeria Flour Mills, the Golden Pasta Company, Burham Cement, the United Cement Company of Calabar (UNICEM), the Nigeria Bag Manufacturing Company (BAGCO) and the Golden Fertiliser Company of Nigeria.

Flour Mills was incorporated as a private enterprise in 1960, but later converted to a public company in 1978. Since then it has gone from strength to strength with a turnover that rose from 53.6 billion naira (£250 million) in 2004 to 66.8 billion naira (£310 million) in 2005. At the same time, the group is driving down its costs. Last year it signed an agreement with Gaslink Nigeria for a supply of natural gas that will save its companies an estimated 40 per cent on the cost of diesel fuel.

Cement imports are banned to encourage the development of Nigerian producers

While wheat products are still the most important, contributing 60 per cent of turnover for 2004, the group is developing its cement interests, which now account for up to 40 per cent of turnover.

The federal government is eager to encourage the development of the domestic cement industry and announced a ban on imports from January this year. In light of this, Flour Mills has switched the focus of its cement operation from importing and distributing to manufacturing. The company is working in collaboration with its technical partner Holcim of Spain, one of the world’s biggest cement companies, and Orascom Construction Industries (OCI) of Egypt.

Flour Mills holds a 30 per cent stake in the United Cement Company of Calabar (UNICEM), which took over the former Calabar Cement Company plant in Cross River State, in southeastern Nigeria. The original plan was to upgrade the factory but then it was decided to go for a brand new plant closer to the area where it sources limestone.

Construction is currently under way on a £200 million plant with an annual production capacity of 2.5 million tons.
Flour Mills is playing a prominent role in the federal government’s ports reform programme in which operation of the ports is being transferred to the private sector. Last year the company signed a concession agreement with the Bureau of Public Enterprises for a 25-year lease of the A and B terminals at Apapa Port, which it is rehabilitating and modernising. In partnership with the Dangote Group, it is also applying for the Calabar ports concession.

INTERVIEW
Emmanuel Ukpabi Managing Director of Flour Mills of Nigeria

You have an extensive experience working in Flour Mills having served for 11 years as the Personnel Director before being appointed Production Director in 1990 and then Director and Group Managing Director of Flour Mills Group in 2002. How has this extensive background prepared you for your role as MD Flour Mills Group?

I sort of grew up in this company. I joined Flour Mills after my university education as a Management Trainee. That meant I had to go through all the departments of the company. For the two years of my training, I passed through the technical, production, commercial, personnel, accounts and all other departments. That made me have an insight into all the aspects of the company right from the moment I joined the company.
By the time I finished the Management Training program, I was posted to production and incidentally I was assisting the first Pasta Manager and that was the first Pasta Plant in Nigeria where I became assistant Manager understudying an expatriate then. 3 years after he left, I became the Macaroni Plant Production Manager, making me the first Nigerian Macaroni Plant Production Manager.

I stayed in this position and from there I underwent a number of courses in Management in UK and Switzerland. From there I went on to be a production manager for the mills. From there I rose to be the Production Director. By the time the Personnel Director left, I took over as Personnel Director, so combining that with my job as Production Director. I ended up being the Flour Operations Director in charge of Production, Sales & Marketing and Personnel. And when the Managing Director left, they felt that I was the one that knows the company inside out and I was promoted the managing Director in 2002. I know that the experience I had gathered over the years having worked in all the departments of the company placed me in good position to be able to head it.

Flour Mills was incorporated as a private company in Nigeria in 1960 and was converted to a public company in 1978, the company has since been going from strength to strength with a turn over that rose from N53.6 billion in 2004 to N66.8 billion in 2005; an increase of 25 per cent. As the Managing Director, could you tell our readers what have been the major achievements and the key of this success?

As I said earlier, our policy is that whatever we are going for, we go for the best whatever we want to do we must do well. What has been driving us is the quality. In every Golden Penny product is written a promise of quality. The quality is the most important aspect and then the service delivery; customers satisfaction. These are the aspects that are driving us. In all these years, we have had the best flour in the country. We went into pasta and produced pasta that can be compared to any pasta in the world. We are using 100 percent of Durum, the best of wheat that could be seen. We have a state-of-the-art production facility in the production of Pasta products. Also we went into fertilizer blending. Today Golden Penny fertilizer is the best in the country in terms of quality. It is the farmers' desire. We also have a bag manufacturing company, the Bagco Super Sack is the largest in Africa and with the best quality.

We also went into importation of cement. We import the best Burham Portland cement and right now we are shifting from importing Portland cement into manufacturing of cement in Cross River State in conjunction with Holcim of Spain and Orascom of Egypt. So whatever we are doing we want to do well. As a result, we started this company in 1960 with about 500 metric tons per day mill but today we are going into 5,600mt/day Mill complex. The reasons why we are working with very solid international groups is because they think that whatever Flour Mills is doing, is right. So they go into it. We have decided to diversify into other products so that we are ahead of the competition and continue to grow. As you said we are growing from strength to strength: our profit level for March 2005 was double that of same period in 2004.

You just talked about the diversification strategy of the company which is basically leading to mergers, acquisition and partnerships with local and foreign groups. What is it going to be in 2006? Can you anticipate this to the readers of the Independent as well as the future plans that you have in the diversification process?

I did not mention the Port concession. We had been in the port business for over 30 years, and already we are operating in berths 1, 2 & 3. When terminals A & B were listed for privatization, we bided for it. Fortunately, we won the bids and right now we are going to be terminal operators. The concession is for 25 years. Our plan is to increase the quality of the port and modernize its infrastructure. As a mater of fact we have done a lot on the ports. On berths 1, 2, 3 we have strengthened the quays and quay walls. In fact they are one of the most modern quays in the world. We spent about $20 million to do this. We are getting our money back from port charges, from the NPA.

We are also applying for the concession of the Calabar port. In the case of Calabar, we are working in conjunction with the Dangote Group. We have a company now which is called Calabar Terminal Limited which is 50-50 owned between Flour Mills and the Dangote Group: this is a partnership. Although we are competing because Dangote is into almost every business we are in, at the same time we are also cooperating to have a joint venture as a Special Purpose Vehicle (SPV) and we hope that we are able to get the concession of the Calabar Port. In Calabar, as you know, we already have our cement production; the small cement plant (UNICEM), which is only 350,000 mt/annum and the big one which is 2.5 million ton/annum is being built.

Also we have the flour mills. It is our intention to expand the Flour Mills in Calabar. In Calabar as I had already said, we have UNICEM, (Flour Mills, Holcim, Orascom, Egypt Cement Company). We have a lot of activities going on there. That is why we need that port concession.

Over the last two years, the company has made huge investments in the rehabilitation, refurbishing, upgrading and replacement of old milling assets and facilities. This included the commissioning of new hi-tech capacity mills, the rehabilitation of the docks at Apapa Port and investment in gas power generation through Gaslink. Would you elaborate more on these and what exactly is the vision behind this comprehensive rehabilitation program?

The Company started in 1960 and our machineries were made to last at least 30 years. Of course if we left this machineries as they were then, we would not be able to compete effectively with new mills that are coming up with state-of-the-art facilities. So we realize that if we have to compete effectively with the new mills, we have to bring in state-of-the-art equipment; we have to improve on our labour force. In fact what we have done is the re-modeling of the mills: where once we needed 50 people to run a mill, currently we need 9 people to run it, and with better quality products. So if we have to compete, we have to do something to upgrade our facilities. That was what we did.

In the case of the Ports, we had to get the berths deeper so that larger vessels could come in. If these vessels come in of course we are better placed, because the freight would be cheaper. Instead of bringing 30,000 ton vessels we bring in 70,000 ton vessels. This is how we are gaining more by bringing in larger vessels. That is the whole essence of trying to get the berths deeper and the Nigerian Ports Authority has promised us that the channels would be deeper too so that it would be easier for the vessels to come in. The reason behind this is to guard against competition as competition gets fiercer. Anyone who stays in one place and does not move knows that he may be swept off.

What advantage will the shift from diesel to gas as an energy source bring to the company?

We have a gas line now, we have gas generating plants. We currently have 7 of them in place. We now realize that diesel as at today would cost us N70 per litre, and we are hoping that what we are going to get from gas would be half that price. Also of course we would operate a very clean power plant because gas is clean. This means less people, less maintenance and we reckon that within 2 years, the generating plants would pay for themselves. Today we started the 3 generating gas plants we have in Bagco. In the next few weeks, we will be completely on gas in Bagco. We are expecting to have 4 plants of 3 megawatts each in Bagco and 7 gas plants of 3 megawatts here. We need about 22 megawatts for our operation. However, we will still keep our diesel plants, we will make sure we maintain them and keep them as a standby. Nobody can say what could happen to gas, and it is better for us to be ble to revert to diesel at any time. In a few words it is a tremendous saving for us going to gas. It is one of the best decisions we have taken.

We are also thinking of going into gas in the Calabar cement factory if only gas is available. We hope they will give us gas to run the Calabar cement factory. We are thinking of building a 120 km gas pipeline from Akwa Ibom to Calabar. We know gas is cheaper and when available, it will be the best thing for us.

Another major part of the Groups new restructuring program is the company's prominent role in the Federal Government's Ports Reform program, in which Flour Mills recently won the bid and on November 16 signed the concession agreement for 25 year lease of the Apapa A and B terminals. As one of the main protagonists of last privatization process, how would you assess its process?

It went very well and I must commend the Bureau of Public Enterprise (BPE) for the job they have done so far. For us we were given the option because we were already a sitting tenant. We had been using berths 1, 2 and 3 for about 30 years almost exclusively. We were given priority in those berths. But in berths 4 and 5, we hope that it will be on common user basis. We hope the person who provides the best services will be in good business.

In terms of international partners, you mentioned that in 2005 in collaboration with Holcim of Spain and Egyptian Cement Company, you commenced a $350 million plan which saw the refurbishment and reconstruction of the Unicem Cement plant in Cross River State to enhance its production capacity to N2.5 million metric tons per annum. What is the vision behind the project and how did the company worked in collaboration with these international partners?

The old plant, the Calabar Cement Company (CALCEMCO) is 350,000mt per annum cement plant that we won on a bid process. We bidded for the plant; we won it and therafter started to upgrade its infrastructure. We got the grinding unit rehabilitated and that is using clinker. We realized later that it would cost us a lot of money rehabilitating the kiln that had been there since 1963 so we decided that it would be better for us to go for a brand new cement plant and also move the plant itself to the area we are getting the limestone.
Currently the plant is by the port and the lime stone is 37 kilometers away. So it is not economical for us. The idea now is to move the plant to area where we can get the limestone and build there. The issue is that the Cross River State Government insisted that that volume of cement cannot pass through the city. This is why we have decided to build a new road where the cement vehicles would pass. It will cost us about $10 million.
Generally in the world today you see that small business, small companies hardly survive. Everybody is trying to enlarge its operation. The larger you are the better for you. In our segment of business a 350,000mt/annum plant could be run by the same number of people as a 2.5 million plant. So this makes you save labour as labour is getting very expensive in Nigerian as it is in all other parts of the world. It is better for us to have a large plant and situate the plant near the raw material which in this case is the limestone. That is what really has prompted us to go into this cement plant in Calabar.

Do you have any aspiration for future partnerships with leading international companies?

This depends on the areas we are trying to invest in. at the time we are thinking of going into fertilizer manufacturing. In that we are looking for technical partners. There is so much potential in this country and we want to exploit as much as possible. We had tried to get into the Eleme Petrochemicals and unfortunately we did not succeed. But we are interested in fertilizer, because we know that this country is a country based on agriculture. We are concentrating mainly on the basic necessities of man which is food and shelter. These are the areas we are concentrating on. We want to go into fertilizer manufacture.

Let us talk about the increase in capital that happened in 2004. The board of directors of the group decided to raise fresh capital for the Group via a Rights issue of 350 million shares to existing shareholders, primarily to finance capital projects and strengthen working capital. How would you assess the success of the issue and do you have any plan to raise more money in the capital market now or in the future?

It was a huge success. We have our own working capital. But we are still thinking of so many areas to go into. In fact we are hoping next year to go again for either rights or make it open. It was a success because it was all subscribed and our financial charges went down. It tumbled down from N1.5 billion to less than N500 million and that has hugely benefited our company. Currently our plan is to work on the 4 of our mills and make them more modern. Each mill costs us about $10 million to modernize. We will put the process in place at the end of 2006 and we hope it would materialize in 2007. Considering this last one was a huge success and because people have so much confidence in us, people will definitely subscribe to it again. We sold our share at N12 per unit, and as of today our share is at N26. as you will understand those who bought into us have seen a clear benefit.

While wheat products are the flagship product of the group, contributing 47% of the turnover for 2004, the group has seen some strong growth in its Cement interests. Through subsidiaries Burham Cement and United Cement Company of Nigeria, which is a JV with Spanish company Holcim, Cement now makes up 28% of turnover. How do you assess and compare the roles that cement and wheat products will play looking into the future of the business?

We know for cement we may have a set back towards the end of the year or early next year if government insists on banning the importation of cement. If we ensure that local production of the commodity is high, then we can start reducing imported cement. The import will be reducing as local production is increasing. That of course may eventually affect our output for the year. At the same time when the cement company in Calabar comes on stream we believe that what we might have lost in imported cement would be gained by the amount of cement manufactured locally .As for now cement contributes to 40% of our turnover, whilst flour is 60%. The other company we own, BAGCO has been running at a loss until this year. We just retooled the place. For this year we believe Bagco would make a profit of up to N700 million. That is something for us, as the company was running at a loss. The company has state-of-the-art facilities now. For pasta, we started from 18mt per day. From 18 tons in 1972, we now have 560 tons per day pasta plants and that reflects the results we have achieved. What we get from pasta products is good. We are thinking about entering the fertilizer segment. If we can produce fertilizer locally, it is going to be a big plus for us.

Looking at the relationship that you have with Holcim: what has this partnership brought to the Flour Mills Group way of operating business?

This company has 50% equity in old Unicem and they are the technical partners. They are one of the biggest cement companies worldwide. Holcim of Spain handle the technical aspect. We give them administrative, commercial and personnel support. The structure in place is of equity participation. For new Unicem we are building 2.5 million tons of cement per annum Plant and this will involve Flour Mills, Holcim, Orascom and Egypt Cement Company.

While Flour Mills has clearly established itself as one of the leading millers in the world, at present less than 5% of African trade occurs between African Nations. While the company has strong expansion strategies underway in Nigeria: What is Flour Mills of Nigeria doing to improve on this situation and what plans do you have to expand your business to the West African sub-region?

Our expansion strategy right now is through the poly bags product from Bagco. As for pasta we are currently exporting to other West African countries and we are starting negotiations to sell our Pasta to South Africa. We have to expand our market if we want to continue growing. On the cement plant, Calabar is strategically located. We could move cement from the Calabar Port to Equatorial Guinea, and to all areas of the West Coast. We know that the market is very large. If you are thinking of 2.5 million tons of cement per annum and Dangote and others have 8 million mt/annum, there would be too much cement here. So we have to look outwards into the West African sub-region to be able to sell our products and our sales people are already exploring this vast market.

What countries are you interested in going into?

Ghana, Benin, Togo, Equatorial Guinea. We are also having some feedbacks from South Africa that they need our products. We have even sent out our people to some of these places and trying to see what we can export to these countries.

The state of the manufacturing in Nigeria is still very poor. When we spoke with MAN president last year, Mr Ugwu, he said that the Manufacturing Sector, which contributed up to 11% of GDP in 1980 has been on persistent decline since this time, contributing only 4.7% in 2003. At the same time close to 30% of the Manufacturing industries have closed down and nearly 60% are ailing. What do you think are the main reasons why for it and what is your advise to Nigerians in this regard? What needs to be improved?

Manufacturing is a difficult business. A lot of entrepreneurs do not want to go into manufacturing, because of the capital outlay, and because the banks are not prepared, up till the end of last year, to give long term loan for long term projects. They are prepared to give short term loan for long term projects, which would not work in this industry. Of course infrastructure is one of the biggest hurdles in the industry. That is why our products are not very competitive; prices are higher as we even have to pay to generate our own electricity. Let me tell you up till today we are using about 90,000 litres of diesel everyday. If we are to be supplied by the PHCN the electricity would be constantly on and off, affecting tremendously our business. There are huge costs: the diesel we are paying for, the maintenance of the generators, the workers, the roads are very bad, and transport system is also dire. We have about 350 trucks in-house. We do not need these. If the railway was running, we would only need to move our products by rail. We would not need to buy such number of trucks, because we are not in the transportation business, we are in manufacturing. Transportation is a major problem and difficulty we encounter. Even when we are using our trucks, the roads are very bad. All this makes manufacture very expensive and makes our product uncompetitive. If we had a good transport system and all infrastructures working well, then our prices would go down and all the people would benefit.
The manufacturers want to have some incentives so that they can be protected from foreign imports. We are not against foreign imports, but we have to be able to play on a level playing field. These are the major problems the manufacturing industry is facing today.

With the consolidation of the banking sector do you think there is more hope for the future?

Yes the banking reform is a good step in the right direction. The banks are better equipped to give loans. Up until now when we needed loans from a bank, we would have to go abroad. It is not only that their interest rate is lower, but they give long term loans. Up to this year Nigerian Banks could not offer them. With the banking consolidation that has just been finalized, the Nigerian banking system will hopefully finally have the financial strength and muscle to give medium and long term loans to entrepreneurs whatever sector they are in. This for the manufacturers will be a big plus.

Sadly, Nigeria is still perceived as a "risk market" by international investors, due to the prospect of conflict and corruption. We are currently working closely with the Nigerian Stock Exchange, on its road-show initiative to work to change this image and to reach out to potential investors in the large Nigerian Diaspora. Chief Ukpabi: what role is FLOUR MILLS, as one of the largest milling companies in the world, playing in improving Nigeria's international image?
More Generally, Why should International Investors feel confident that Nigeria is no more a "risk market" than, say, Thailand or China?

What I have always said is that it takes two to tangle, there is always a taker and in the case of corruption there is always a giver as well. Nigerians can be blamed up to a certain extent. The Government of Nigeria however is implementing a strong and assiduous fight against corruption through the EFCC, the ICPC and already fruits of these efforts are to be seen in daily newspapers. It is no longer easy as before to take money and bring it abroad. The system in place is reaping its fruits. We just hope it will last and the results will be seen in the years to come. On a general note, for an investor who wants to come in and take advantage of the enormous opportunities that exist in Nigeria, I would say to enter the country through the right doors, meaning contacting the right institutions and not putting themselves in the hands of uncertain people. When you want to go and invest into a country you always have to go through due diligence. The right institutions will guide and direct you to the right people and institutions.

In closing Chief Ukpabi, what would you like your legacy to be from your time as MD of Flour Mills of Nigeria? When the time comes for you to step down from the position, what would you like to have achieved?

That is a good question. I would like to be remembered as the man that has been able to contribute to the development of Flour Mills of Nigeria, at the heights where we can see it today. I would like to be remembered as the man that has been able to make a difference in the organization. You know there have been many changes in the company from structural point of view and I would say social point of view. I would like to be remembered as that man that has been able to make that difference in the organization.

Thanks you very much for your time

Thank you