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NIGERIA
A new business climate |
 Strategy
 CADBURY FACT FILE
"1998 was a particularly difficult one as the nation passed through a watershed in our history. Through all that, we pulled our collective strength and, together, we surmounted the challenges we had to face. We remained firm in our determination to move our business forward and focused on the vital things. We are in firmer control of our business today, and this pursuit of our of our strategy has moved us ahead of key competitors.
Our focus on three specific areas, namely
-plant and machinery upgrade to execute our quality guarantee
-information management to accelerate the business processes
-manpower development.
Has proved to be the correct thing to do. This position requires us to keep investing, and we know that the payoff will be handsome. The whole essence of all our activities no w and into the future is to maximise the return on the investments of our shareholders through our company-wide initiative. Managing For Value (MFV)."
Bunmi Oni
Managing Director and Chief Executive
THE CADBURY nigeria BUSINESS
Cadbury nigeria Plc is a leading manufacturing concern in the Food and Beverages industrial sector. Its core manufacturing business is divided into three strategic business units namely, FOOD DRINKS, FOODS and CONFECTIONERY.
A fourth business unit is the Industrial Materials Unit (IMU) which comprises our intermediate products businesses notably, the Cereal Conversion Plant in Lagos the Tomato Puree factory in Jos. This business unit manufactures key inputs - glucose syrup, sorghum extract and tomato puree - to feed the three mainline businesses, and for sale to third parties, especially in the food and pharmaceutical industries. The heartland of this unit, the Cereal Conversion Plant is an enduring example in technological innovation. The Company also owns a subsidiary business, Stanmark Cocoa Processing Company, Ondo. A fully integrated export oriented unit with a singular mission - to be the preferred supplier of cocoa butter, cocoa liquor and cocoa powder to select user customers around the world. Stanmark has been granted the Export Processing Factory status by the Federal Government which no doubt is a major boost to its future success. The Stanmark investment was clearly a strategic move to generate foreign exchange earnings and to understand the vagaries and discipline of international markets.
REACHING THE CONSUMERS
The Company wide portfolio of high quality branded products are heavily supported with strong advertising. On-going investments in the development of route-to-market has ensured a nation-wide distribution coverage, and a key source of competitive advantage. With the network of 19 depots, consumers in all 36 states of the country are served products that offer real value for the money spent. An increasing proportion of our brands are now being offered to the export markets as well.
THE BRANDS
Food Drinks
The Food drinks range consists of Bournvita (the nourishing food drink fortified with extra vitamins and minerals for total vitality) Pronto (nigeria’s favourite chocolate drink) Richoco (a rich, tasty food beverage)
These brands have collectively maintained market leadership in their category.
Confectionery
The Confectionery range features such household names as Tom Tom Goody Goody
Buttermint The Trebor range (Luckies, Trebor Peppermint Original (TPO)
Malta Sweet Fruities, Ginger Orange, Koffstick, Tofi
Chocolate Eclairs Jollies Lollipos (in banana, orange and Pine apple flavours) and
Malta Lollipops
This range straddles principally the hard candy, compressed sweets and lollipop segments in which they have a distinctive leadership.
Foods
The Food range comprises
Tomapep (a choice blend of pure tomato puree and ground pepper) and
Dadawa (the first and only wholly nigeria seasoning cube made from locust beans). Others are Cheff Tomato (the rich red puree for extra delicious taste)
Knorr cubes (premium quality seasoning cubes in beef and chicken flavours) and
Cheff Peppersoup cubes (easy, tasty, convenient peppersoup in double quick time) - another pioneering effort by the Company. We are in strong number two position in this category.
Aside from the unwavering commitment to making whenever possible with locally sourced raw materials, (exemplified by Tomapep, Cheff, Dadawa and Cheff peppersoup cubes) there has been a deliberate effort to re-invent the various brands to position them for market leadership in their various segments.
The past two years have witnessed major improvements in the packaging and product delivery of Bournvita, Trebor Peppermint Original and lately Chocolate Eclairs. The company’s brands now come with a Quality Guarantee, a demonstration of our commitment to product quality standards. It is worthy of note that no other company in nigeria carries this guarantee on their brands.
HIGHLIGHTS OF 1998
Plant and Machinery upgrade
Enhanced Information Management capability
Manpower development
Renewed Focus on export
Invigorating the Industrial Materials Unit towards expanding franchise base
Signing on to the Integrity Charter of Transparency International - a public reaffirmation of our commitment to the corporate philosophy of integrity.
COMMUNITY INVOLVEMENT
The Company’s corporate social responsibility policy is expressed through generous donations to and sponsorship of meaningful endeavours in the Arts, Education, Health and Sports, and the important needs of the society. The policy and structure of Cadbury’s corporate giving is directed by the Board.
Beyond this, we have maintained a policy of attaining the highest standards in environmental management. Our Approach to our corporate social responsibility spans several facets, beginning with the creation of healthy and nutritious products for consumers. Several exemplary activities are undertaken as well. In 1998, Bournvita provided free rides for school children under the Bournvita Scholars’ Free Bus Ride. Also, over 100 children were sponsored on an excursion to the Federal Capital City, Abuja under the Bournvita/ADC Children’s Magic Flight. And in its pioneering effort towards sports development in nigeria, the company recently sponsored The Cadbury Cup quadrangular golf tournament, the first ever inter-club gold competition among top golfs clubs in nigeria - the essence of which is to raise existing standards of the game, just as it did with football with the pioneering of the Professional Football League, and Table Tennis.
MANAGING VALUE
Our Primary objective is to grow the value of the business for our shareholders. Managing for Value to the business philosophy which unites all our activities in pursuit of this objective. Our approach is necessarily holistic, galvanising the energies of our managers and staff in a single-minded fashion.
In line with the objectives of MFV, the Company has taken the following strategic medium and long term quantitative targets are:
Grow economic profit by 15% per annum
Raise Operating profit Return to 26% by 2002
Secure a significant positive cash flow of 3% of NSV annually.
MANAGEMENT
Ably directed by highly focused young executive management, Cadbury nigeria is sure-footedly poised for the challenges of the marketplace in the new millennium.
INTERVIEW WITH
MR BUNMI ONI
MANAGING DIRECTOR & CHIEF EXECUTIVE OF CADBURY nigeria PLC
May 26th, 1999.
1) Mr. Oni, everyone knows about Cadbury and its famous chocolates. Still could you give us a brief historical background of Cadbury nigeria ?
Mr. Oni : Cadbury nigeria Plc operations started in the very early 50s. In fact, it started, more or less like a trading outpost, sourcing cocoa as an input into chocolate factories in Birmingham. But that project soon opened the way for an extensive market and by the end of the decade we had already set up a packing operation for imported manufactured goods. So chocolate beverages, Bournvita and pronto started being packed here in nigeria.
This operation went on for about four years and it exposed the potential even further. As a result, in the early 60s, 1964 more precisely, this factory was built and started operations in January 1965.
It started off as a company wholly owned by Cadbury Schweppes. The shareholding structure has changed over time. Today, Cadbury owns 40% of the company as the remaining 60% is owned by nigerians. Of the 60%, about a third of it is held by institutional investors while the rest is owned by individuals. And one can say that the top twenty percent of the individual shareholders would hold about 80 per cent of the total nigerian stock holding. What we have seen in the last five years is an increment of the institutional shareholders’ participation. These are insurance companies, pension funds, fund managers, etc..
The historical development of our business reflects the evolution of our strategy. Our focus in the early years was import substitution. The economy was a planned economy, foreign exchange was limited and controlled, licenses were required for most operations, and so on. The growth path then was import substitution, which meant that new product development and research were focused on the utilisation of local raw materials. In addition, that strategy resulted in the creation of our Cereal Conversion facility which uses sorghum grains in place of barley to produce intermediate inputs into our main production lines. This work was a scientific breakthrough and our lead nigerian scientist is a joint holder of the patent for this process.
This vertical integration represented tremendous savings in cost and supplies all our glucose and malt extract requirement. The excess is sold to third parties mainly in the brewery and pharmaceutical businesses.
Strategy moved on to export orientation in the early 90’s and the high point was the creation of a subsidiary enterprise (Stanmark Cocoa Processing Company) in which we hold majority stake. Stanmark is a wholly export-oriented unit, with a strategic intent to be the preferred supplier of cocoa butter, cocoa liquor and cocoa powder to select user customers around the world.
Stanmark is well positioned to achieve this, in spite of the vagaries of the cocoa processing industry, and is generating foreign exchange earnings in addition to significant exposure to the discipline of international commodity markets.
Apart from Stanmark products, a few of our manufactured consumer brands are now being offered in export markets. Our flagship, Bournvita, has FDA endorsement for sale in the United States.
Strategy evolution in the mid 90’s to the pursuit of growth in prioritised markets. This strategy saw the restructuring of our business into four Business Units, each one managed by a Business Unit Manager:
Confectionery
Food Drinks
Foods
Industrial Materials
Our business was sold, and some key services were out-sourced. This restructuring was followed by major investments in upgrading our manufacturing process, to attain international standards of quality. The ambitious investment, which was funded from retained earnings, also featured significant upgrades of
Route to market, which rationalised customer base and channels to guarantee low cost service chains, with enhanced consumer relations interphase.
Business processes, with the installation of SAP, the Rolls-Royce of integrated Enterprise Resource Planning (ERP) business systems.
Management Development, creating multi-skilled world standard management team.
The advancement of our policy on the Environment, as well as a comprehensive Risk and Business Continuity Planning resource.
Today, strategy is driven by the Cadbury Schweppes Group-wide philosophy of Managing For Value, (MFV), as the governing objective. MFV provides us the vehicle for securing superior shareholder value measured by the quality of Economic Profit and EPS growth, free cash and growth of Total Shareholder Return.
Our brands hold dominant market share positions and carry our hallmark quality guarantee for superior consumer benefits.
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2) You presently raised three important issues : the first issue is the export market, the second one is competition and the third one is the stock market. Starting with the stock market, you are saying that you rely more on institutional investors. The last time you raised funds from the market was in 1994 or 1995, is that right ?
Mr. Oni: precisely in 1993.
3) But today, you are still one of the most top most traded companies on the Stock Exchange. How do you explain this ?
Mr. Oni: Well, first of all, we had a philosophy since the last time we were in the market, as a deliberate step, to fund the next phase of our development from retained earnings, instead of going back to the shareholders. This has moderated our dividend policy, naturally, but the important thing is that the share owners now have detailed information, not only about our strategy and why we are doing what we do but they also have a regular dividend stream that they can see growing from year to year, as well as capital appreciation. They are therefore able to be assured that the future of their investment is secured because we are regularly re-investing. Those are the core elements that we are getting across to our investors. Over and above that, we hold an investors forum, where we bring in top investors, primarily institutional investors and large institutional shareowners along with analysts and financial press and a few of our key bankers. Here we actually share in more details the facts behind the numbers that we publish and more importantly, how our strategy has evolved. We demonstrate firstly the clarity of our strategy ; Secondly, the fact that we feel confident that we have our own future in our hands regardless of the economy which has been turbulent in recent years. We can complain about it, but we need to show the investors that we do have a firm control, in spite of all of those issues.
4) You need to have a lot of confidence in the nigerian Stock Exchange to be so confident in the future of your own stocks ?
Mr. Oni: Yes, you might say in a sense that we do not have a choice because we are located here. One thing is that the returns on this market is highly competitive. But what we have seen over the years, is that the capital of market is really shallow, I mean, barely 3 billion dollars, that is really small for this size of economy, but we have also seen that it is developing, We know that there is a great potential. So there is confidence there. We also know that it is shallow because many of the public enterprises have not been brought on to the market. And as soon as our government gets going with the privatisation programme, the market will get deeper and even more professional. We have also seen that the market itself has turned the searchlight on itself and progressively has upgraded its own facilities. Over the last three months or so, it has been able to move on to automated trading. This is a much more open system, there is much more credibility in terms of pricing and we see that evolving over time. So we think that there is potential . The circumstances that have stopped the market from growing over the last 5 years are exactly the same reason that have stopped investments in the country for several years and have even led to capital flight and some de-industrialisation. We have emerged from a pariah state to which the Abacha dictatorship confined us, and the transition to democracy has taken a firm hold. Naturally the new elected government and legislature will need to learn and make the institution work but we have a new positive direction. Moreover, the business community has taken a more significant hand in contribution to economic policy, and has promoted dialogue between the public and private sectors on the priorities for economic growth.
5) How do you explain the sharp drop in your turnover to 5 billion in 1997 from 7 billion in 1996 ? Is this drop part of those problems....
Mr. Oni, Yes precisely.
6) So, where are we up to now?
Mr. Oni: Well, 1997 was a particularly ......
7) Difficult ?
Mr. Oni: Well, I thought I could look for a better word than "difficult" but yes, it was a particularly difficult year.
8) Was this situation due to investment, organisational, or more market problems ?
Mr. Oni: Due to market problems. We saw the consumer purchasing power fall very sharply in 1997. The economy declined. The manufacturing sector, despite the fact that it only contributes 7% to the national GDP, declined as well in 1997. We were in a situation of a declining economy with a growing population of about 2.8%. Really there was no recipe for growth. But even in that period, we were still investing in our own internal business process because we knew that it was a passing phase. Profits in the future would have to come from inside our own operations if we could not increase prices in the market, in spite of the inflation But it meant that we had to find our profits from our own operations so we kept investing in our own business operations. It was an opportunity for us to upgrade our systems to SAP business systems. So that was a period which we used to sharpen our business competitiveness into the future. The result was that in spite of a decline in turnover, our operation profit return was 22%, achieved through active cost control.
9) Any figures for 1998 ?
Mr. Oni: Yes, we have published our 1998 figures and we have seen significant growth. We reported a nearly 20% growth in sales in 1998. Profit grew by 10%.
10) You mean 6 billion Nairas ?
Mr. Oni: No, about 7.4 billion at the group level. And we see ourselves as getting back on the growth curve.
11) Regarding competition, it must be difficult to evaluate your market share since the competition is so fierce.
Mr. Oni: It is not so difficult, we have had measure for performance of our brands in the market. I spoke to you about our three key business units. The forth one, we cannot relate to the market place since it produces intermediate products, in each of those three, we know exactly where we are. In food drinks, we are the leader and we have been for several years. Our flagship, Bournvita, is also a market leader in its own category. We went on to produce a down market product – Richoco - when the purchasing power of the people fell. We wanted to catch those who would have fallen due to the limited funds available to them. Its a brand that is equally as nutritious as the high standard one but at a lower price. And its impact on the market was like a rocket. It just took off. In the confectionery, we are market leaders and in the foods, we are a very strong number two.
In the confectionery, we are primarily in the sugar candy business, That is the way the economy has evolved. The major reason for the low of level of chocolate confectionery is the route to market. The route to market is not sophisticated enough for us to secure the integrity of the product from the time we deliver till it gets to the consumers. As you know, chocolate is temperature sensitive and if they are exposed to a high temperature, they melt and bloom and really do not look attractive to the consumers. We need outlets that are air conditioned
12) Maybe, one important obstacle could be NEPA (nigerian Electric Power Authority) ?
Mr. Oni: The major obstacle is NEPA.
13) This is why Cadbury invested in generators to keep your operations going on ?
Mr. Oni: That is a major issue and I will take it in a wider context. The local manufacturing industry is uncompetitive in cost mainly, on account of infrastructure deficiencies and unbalance in tariff structure. These factors, especially infrastructure, may make the nigerian industry disadvantages by as much as 20%. You have to provide your own infrastructure. Our operation here runs 100% on our own power and we source our water too from a 2,500 foot deep boreholes. We have to content with the cost of running the power station, but the cost of failure of public supply is even higher.
14) You were talking about exports. Are you saying that your plant exports to West Africa ?
Mr. Oni: Beyond West Africa actually. What we did was to set up a subsidiary company called Stanmark Cocoa Processing Company about four years ago, to lead our major entry into the export market. Our customers are mostly in Europe and the USA. In that business, we process cocoa into cocoa butter, cocoa liquor, and cocoa powder primarily for the export market. Some of our consumer brands are exported, but mainly in to West Africa.
15) Is this because nigeria is a huge market with a low potential ?
Mr. Oni: No, it is the future of our business. Not our market. There is market for our goods in nigeria, there are 120 million people. But we need to secure better control of our foreign exchange requirements and also to acquire the discipline of working in the international market. This business has taught us that the kind of discipline, the quality standards and the general operating standards that are obtained on the international market are what we have got to work at having, Today the mission for that subsidiary is that we would be the preferred supplier of those cocoa products to a selected group of user companies. And today, we successfully supply to some companies that are entirely committed to us. Now we are able to export some of our manufactured products into the west African sub-region, the rest of Africa and a little bit into Europe, essentially addressing the Diaspora.
16) It is very interesting. Does this mean that Cadbury nigeria is the main plant in Africa ?
Mr. Oni: No, there is one South Africa, which is bigger than Cadbury nigeria in Size ; there are also plants in Kenya, Egypt, Ghana and in Zimbabwe.
17) Are they all as important as you are in terms of marketing?
Mr. Oni: I am sure that they are, if not they would not be as big as they are ! The South African business is bigger that ours which is understandable. The consumer is a richer consumer but next to South Africa comes our business.
18) On a more personal level, you are a key player in the nigerian Economic Summit Group. There will be one Summit in September. What is the aim of this group ?
Mr. Oni: We have held a summit each year since 1995, after the 1993 edition. I spoke about the decision of the business community to have a bigger impact in relations with government and bigger input into policy development . The first objective was to set up a continuous platform for a ongoing dialogue between the government and the business community. And secondly , using that as a premise to create active support for the development of government policies. So over the years what the Economic Summit group has done is to help in the process of creating a blueprint for the economic development of the country. We have offered this to different government leaders with varying degree of success. The essential thing is that each year ,we try to evaluate the performance of the government in terms of its policies on the basis of this blueprint that we had agreed in 1995. Sometimes, we see reversals, U-turns and so. But fortunately, we have also seen increasing commitment to the ideals of moving the country to a truly market economy as quickly as we can but at a pace we can control. The fallout of this work initially was that the Government was adopting longer planning cycles. The vision 2010 project was an of shoot of one of the summits. The year 2010 was chosen because nigeria will be 50 years as an independent nation.
19) As a last question, how do you see nigeria in the year 2010 ?
Mr. Oni: That is a difficult question. How would I like to see nigeria to be is much easier and I can answer that very easily. I think that with the new beginning we are making, there will be a serious commitment to democracy. The people have taken a less casual attitude to what government does. There are lot of youth unrest, labour is beginning to put their foot down to say "look we are not going to take this any more". People are beginning to make demands and I see that growing dramatically. Expectations from them are very high. I think that there will be a better commitment to moving the economy to a market economy. It has been slow, but I think it will pick up as the Government is aware that we cannot continue to fund the public enterprises, so we better make them private and open up those industries to competition as that is what will bring in development.
So in the year 2010, I see a totally different nigeria. One that would grow at 8-10% each year. I see a generation of nigerian which will have on their hands enormous potential but an inheritance that they will have is a fallout of some of our poor infrastructure. So eventually, we will really see what is now the Cab of Africa grow into the Lion of Africa.
Thank you very much
Mr. Oni; Thank you.
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© World INvestment NEws, 1999.
This is the electronic edition of the special country report on nigeria published in FORBES Magazine,
October 18 th issue.
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nigeria
