The real sector has many challenges- dearth of infrastructure, multiple taxation, and stiff regulation, among others. Added to these is the power challenge, which has rendered the sector prostate, according to the Managing Director/Chief Executive Officer (CEO), Honeywell Flour Mills Plc, Lanre Jaiyeola. In this interview with COLLINS NWEZE, he says manufacturers will do better if power is stable.
What is your position on the Federal Government’s cassava initiative and how is Honeywell complying with the directive?
The cassava initiative is a welcome development and we at Honeywell Flour Mills will constantly support government’s policies that will help grow the economy. In demonstration of this, we have invested almost N1billion in modifying our plants to add high quality cassava flour to the composite flour that we produce today.
More than ever before, the Federal Government has created a stronger bonding between players in the flour milling industry and the Ministry of Agriculture. We are working together in ensuring that the policy is properly articulated when it comes into effect and that it can work in the overall interest of Nigeria and Nigerians.
We are presently working in a committee set up by the Ministry of Agriculture to look at the details of the policy and in a couple of weeks, this will be made public.
What are the implications of high interest rate on manufacturers’ operations?
The interest rate in Nigeria is among the highest in the world. Unlike Europe and America where interest rates hover between one and two per cent, we operate an interest regime of over 15 per cent. After the recent rebasing, the manufacturing sector accounted for only seven per cent of the Gross Domestic Product (GDP).
The implication is that government needs to focus more on the real sector because that is the heart of the economy; that is where we can generate foreign exchange, bring about food security and generate employment for the people. We are very hopeful that the Federal Government can do more to help the Central Bank of Nigeria (CBN) in its efforts to bring down the interest rate.
How can the tax system be improved?
Taxation in Nigeria has never been better managed as it is now; we are now in a situation whereby the contribution of taxation or the relative relationship of taxation to the GDP is much higher than what used to be obtained but even at that, when you compare the ratio of taxation to GDP, it falls short. I think the last tax to GDP ratio was 12 per cent, however before the rebasing, it was 20 per cent. Compared to a tax rate of 30 per cent, which means that tax management system needs to be strengthened. However, in terms of administration, I think the tax authorities are doing well.
How has the current tax structure impacted on your operations?
As good corporate citizens, we are subject to paying tax as established by regulatory authorities. So, its normal for us that there must be taxation in business; the least we can do is to comply and pay whatever tax that is established for us.
Inadequate power supply poses great challenge to manufacturers. How has your company been coping?
Energy in manufacturing is very critical. Unfortunately, we have not derived much benefit from the national grid. Since we started this business about 19 years ago, we have always run on self-generated power supply. Today, we have a combined 30 megawatts (Mw) of self generated power supply comprising a 15 Mw gas power plant and a back up of another 15Mw diesel power plant.
So, you can appreciate the cost implication of running a manufacturing business in our environment. Because of the nature of the processes we run in our business, it is almost impossible for us to depend on power from the national grid. It is a heavy cost, which is avoidable and we are looking forward to that day when manufacturers will have to depend on power from the national grid to run their business.
What is your assessment of the capital market so far?
It is very unfortunate that we experienced a collapse in the Nigerian capital market about seven years ago, although, it was not only a Nigerian thing but a global phenomenon. That said, the efforts of Nigerian Stock Exchange (NSE) at revitalising the market is highly commendable in the sense that investors’ confidence is gradually being boosted again; the apathy to investing in new issues is gradually going off. Soon, investors’ interest will be fully activated and the capital market will boom again.
We believe that our share pricing will be better than it is at present. The problem is that most Nigerians want to invest today and get instant returns and when that is not coming, they tend to sell off and create panic in the market. Honeywell is committed to building the wealth of shareholders not only today but for the future. In years to come, all the efforts we are putting in place today will achieve tangible results for our shareholders. So, for an investor who has interest in long term returns on his investment, we believe very strongly that Honeywell Flour Mills is where to focus on
What is the way out of the rising cases of unclaimed dividends?
This is a worrisome trend in the capital market if you look at the reports of many companies the rate at which the list of unclaimed dividends grows is sometimes alarming.
I think the regulatory authorities need to enforce a mandatory awareness campaign by publicly quoted companies on dividend claims, so that shareholders and investors can benefit from their investments.
We have also observed that information flow from investors to the companies is sometimes faulty. Therefore, it is pertinent for companies to ensure that from time to time, shareholders addresses are revalidated.
Though the trend now is e-dividend, as much as possible companies should encourage payment of dividends into shareholders account. I believe if all of these are put in place the level of unclaimed dividends will drop.
How has the unclaimed dividends challenge impacted on your operations?
At Honeywell Flour Mills, we strive to ensure that our shareholders are informed periodically on unclaimed dividends; we make announcements at Annual General Meetings (AGMs). This year, we are going to make a publication listing out names of such shareholders who have their dividends unclaimed. This is part of our contribution towards eradicating the menace of unclaimed dividends.
Last year, your firm unveiled a N10 billion investment in flour mills. How has that impacted on your output?
You are right, in 2013, we increased production capacity by adding 1,000 metric tons flour mill, in two tranches of 500 metric tons each. That expansion greatly impacted positively on our brands. Before now, we had attained our peak production capacity for Honeywell Semolina but with that expansion, we were able to churn out more for our consumers. In addition, we were also able to produce more Honeywell Superfine Flour and Honeywell Wheat Meal. The implication of all these is that we were able to satisfy the demand of our consumers and will also be able to grow the business more in years to come.
What are your expansion plans?
Yes, in fact that is the medium to long term plan of the business, to have a one stop-shop. We are expanding by investing in a 63 hectare land in Shagamu, Ogun State, the implication of that is that we will be in a position to expand across all the products that we offer the market. We are increasing Pasta and Flour Mill production capacity while also investing in a Feed Mill.
How will you assess the performance of your company in the last one year?
Given the business environment in which we operated in the past 12 months which ended March 2014, I want to say that it has been very tough. We were confronted with a lot of challenges which are related to heightened competition among players in the industry.
There is intense competition in the manufacturing landscape, especially in the sub-sector where we operate, but we are focused, purposeful and with a committed work force, we are equal to the task.
Our number one competitive tool is the quality of our products, which we do don’t compromise on, we shall continue to remain number one in terms product quality.
It is also important to note that the key drivers of our superlative performance are our people, workers, board and management. We are driven by the vision of the company, which is: To be the Most Admired African Company in Terms of Our People, Practices and Successes. We are driven by our core values of Responsibility, Integrity, Courage, Excellence and Respect for people.
What is the next big idea expected in Honeywell?
The next big idea from Honeywell is that we are presently embarking in a major expansion programme in Sagamu, Ogun State. We are investing in a 63 hectare-land that will enable us expand and increase capacity across all our existing products. At this location, we plan to literally blow up the business.
We are increasing our capacity for pasta, flour and investing in a feed mill. We plan to expand our flour milling capacity by another 500 metric tonnes per day, expand pasta by about 150 percent of what is currently in place now.
We are investing in feed mill operation in an effort geared towards focusing on locally available raw materials. For us, it is another way of building value for our shareholders. Most of these projects will be in place in another 18 months and commercial production will start which will enable us not only to increase our top line but also increase our bottom line and offer better returns to our shareholders.
How will you assess your brand’s performance in the market?
We play in five categories; our flagship brand is Honeywell Superfine Flour, it is number two in the market with about 20 to 22 per cent of the market share; Honeywell Semolina – 40 per cent; Honeywell Wheat Meal – 60 per cent; Honeywell Noodles – 12 per cent and Honeywell Pasta; 14 per cent. Sometimes our market share is just a reflection of our limited capacity and not a true reflection of the consumers’ preference for our brands. We have exhausted the current capacity for some of our products and as we build more capacity, we will continue to increase our market share.
Your adverts usually run during football matches. Why have you chosen such time?
Yes they do. If you look at the profile of our core consumers, they are children, youths and young adults and football is one unifying factor in Nigeria, we believe that football is one platform that can offer the level of awareness that we want to associate our brands with. So, it’s an opportunity for us to connect with all our core consumers not only children, but adults and even the very old ones that enjoy watching football.
