‘Innovation, commitment to stakeholders strategic to our business growth’
Mr. Peter Ndegwa is the Managing Director and Chief Executive Officer of Guinness Nigeria. The consummate manager and administrator is known for niche in turning businesses around and has held his own since his assumption as the brewer’s helmsman in the country. In this interview with CHIJIOKE NELSON, he explains the company’s secret of survival and commitment to stakeholders even in challenging economic situations.
As a big player in the manufacturing sector, the operating environment has not been all that friendly, what does getting out of the recession mean to Guinness Nigeria Plc?
One of the critical things we need to consider as far as the operating environment is concerned is the Gross Domestic Product (GDP), which has started to grow in the last quarter. This is good news as there are signs that the economy is coming out of recession. Again, we need more quarters of positive GDP growth in order to see this reflecting in the consumers’ pockets. At the moment, the costs of buying commodities are still going up so we can see consumers holding back on spend, reducing frequency of purchases, or spending less anytime they purchase, or going for lower-priced brands. If you look at the other KPIs, one of which is inflation, it is in double digits, food inflation is about 20 percent. So consumers are not in great shape yet. From the manufacturing perspective, foreign currency still remains an issue as the Nigerian economy has big import content. Although we are sourcing 75 percent of our raw materials locally, there is still 25 percent, which is a lot of money for our business. When you are importing and accessing foreign currency, the foreign exchange market is very important. The past 20 months when liquidity was a problem, it was a big issue for us, even though we were able to get $95m support from Diageo. The intervention of CBN is quite laudable as it improved liquidity. This is one of the biggest positives that we have seen in the GDP. This has brought stability in terms of the company’s ability to access liquidity – our concern is how sustainable is this. Secondly, the shocks in the economy, oil price, security, and policies are factors that need to be considered.
The CBN has had different policies at different times but we hope that this one will continue to be stable because it provides the cover for companies to plan, and predict their expenses to suppliers.
Having gone through the recession, for the Nigerian case, was that your greatest challenge or do you have other challenges that are more demanding?
The recession was accompanied by a severe FX liquidity crisis. If we did not have this crisis, I think the recession would have been bearable for businesses. But for consumers, it was a big problem. For us as a business, the biggest challenge during the recession was not that consumers are consuming less, but the currency liquidity crisis made our costs to increase. It also created business continuity problem, as we could not purchase our raw materials in good time. This was however translated to consumers in terms of prices that they have to pay. For us, I would say the FX crisis was a bigger challenge.
You recently announced results that showed a 23% increase in revenue for the year ended June 30 2017. What would you say is the biggest driver of these results?
It has been a tough couple of years for Nigeria and for our company. However, we have continued to focus on our strategy especially in the area of expanding our portfolio. The value or accessible beer segment is in growth and we have started to play more strongly in that area with brands like Satzenbrau.
We have also expanded our portfolio by going into the production of locally manufactured spirits. About two years ago, we got distribution rights for international premium spirits from Diageo, our parent company, to distribute brands such as Johnnie Walker, Baileys, Smirnoff, among others. We have expanded our product range for our consumers. Last year, we launched our local mainstream spirits, locally produced international brands in our plants here in Nigeria. We are proud that we have been able to launch additional brands such as Smirnoff X1 Intense Chocolate Vodka, and Gordons Dry Gin with Moringa Citrus Blend, while we have also started producing brands like McDowell’s, which we got distribution rights from United Spirits Limited , owned by Diageo. Basically, we have expanded our range and we are going into segments that are growing which we were previously under-represented in.
Another thing we did was to drive productivity. This we did significantly by reducing waste, driving simplification and improving our business processes. I think the recession was a learning period for the country and when in a recession a primary way of protecting yourself is to reduce waste. On an individual level, most people try to prioritize their investment which is the same for businesses which try to cut back on spends that are really not relevant, and start challenging where you are investing.
You just listed some of your strategies and how you drove business growth. So what were the things that were lacking at the time when you had issues? Did you feel there were things you didn’t do well?
Not really. Organizations anywhere in the country will always look at the market. We also did, and we discovered that we were primarily participating in the premium brands – Guinness Extra Stout and Malta Guinness. At a time, this market was buoyant, five years ago, until the value segment, which is also known as the affordable segment, suddenly became predominant. It wasonly ten percent of the total beer category, but today it is close to 70 percent. So you have seen the consumers down trading, not just because the economy was challenging, but because there were many brands available in the market. And you could argue, should we potentially have moved faster? Yes, we could have moved faster. Now, however our strategy is very simple and clear. Adapt a pricing policy that consumers can afford and offer brands of high quality. So we still retain the quality offering that Guinness Nigeria is known for while also accessing more consumers that we were not engaging before. In achieving this, we reduced waste so that we are able to price our brands right and then expanded the number of our distribution points with route to consumers playing an important role within our strategy.
Are these strategies you have mentioned short to medium term? What are your long term plans?
All our strategies are simple and can be easily implementedsustainably. This is because Guinness is known as the house of quality. When we talk about locally manufactured spirits for example, we are saying you are getting world standard brands produced by a reputed house of quality, at affordable prices.Consumers can then make informed choices knowing that they are getting quality in an environment where counterfeiting and adulteration are big issues. You have a brand that you can trust, from a house that you can trust, at a quality level that you can trust.
Additionally we are investing behind our capacity and if we weren’t thinking long term we would not be doing that. We have also expanded export not because of profitability, but to access foreign exchange. We exported some of our products to countries such as Cameroun, Ghana, among others. As a result, we were able to use the currency we earned to fund the purchase of the import. We were also able to reduce costs, in the last two years, through sourcing of raw materials locally. However, this is not always about lowering cost, especially during economic recession, though it is more sustainable long-term. We source cassava, sorghum, etc. locally and have significantly moved our local sourcing from 40 to 75 percent in the last three years ago. Although there have been challenges but we still believe this is sustainable. We have also started to work with Edo state and some other Northern states in developing the value chain of the agriculture sector. For quality, we have effective processes in place, and we can get better pricing and guarantee farmers on specific prices of their outputs.
Though you mentioned part of the strategies of sustaining or making Guinness Nigeria a market leader in the total beverage alcohol business in Nigeria, what other methods are you holistically looking at to consolidate on these strategies?
We make bold to say that Guinness Nigeria is the only total beverage alcohol business in the country offering premium soft drinks, beer, and spirits. In so doing, we are getting access to more consumers. We have also realized that consumers interact with beer and spirits at different times and occasions. Previously, if you are only serving consumers in beer, you lose such consumers when they are in an occasion when they need spirits. We are also working on improving our visibility across all the regions. Also, on the cost side, we looked holistically on how we could reduce waste, and invest in our brands, not just because we want to deliver more profit. In the area of logistics, we have reduced our turnaround time by 60 percent, thereby using fewer trucks. This enables us to re-invest our money to build our brands. On our efficiencies in the plant, we have started using local sourcing instead of importing. In the area of waste, we have got everyone to understand the need to reduce waste. Our employees have shown tremendous support in this regard, understanding that they need to protect the business asthey see themselves as critical stakeholders to the business. Ultimately, the most important thing is to offer consumers what they want at the right price. With these, we have been able to grow our brands across more consumers, across occasions and categories.
Talking about sustainability, shareholders were all smiles when they saw the robust dividend that Guinness declared last year. There are indications that the company’s dividend policy has continued to increase year-on-year, and has indeed brought hope back to the Guinness shareholders, do you think Guinness can defend this dividend policy?
If you look at the time when we were paying dividends, it has always been around 50 percent. The distribution of dividends this year is not unusual. We distributed 50 percent of our after tax profit. So if you are a long-term shareholder of Guinness, this will not be unusual. What I think shareholders will be worried about is: will Guinness continue to make profit? Is paying dividends the right thing at this stage? What I can say is that we are very confident that we have undertaken the right strategy, and we have gone through our rights issue, which will help us take out a lot of debts that we have had on our balance sheet. This has been a drag on our results. Last year, our interest cost was quite significant, and if you are able to significantly reduce that interest cost, then it means the profile of your profit will be more stable. Secondly, because we have reduced the debts, including the foreign exchange debt, now that liquidity is more available, then you expect less volatility on the foreign exchange which had previously impacted negatively on our profitability. So, we are growing better and starting to have more predictable growth. We are more confident in managing costs and interest on costs that we have been carrying and also the FX volatility. That is the reason why the board recommended that dividend level to the shareholders. The pay-out ratio was not different from what Guinness had done in the past.
You have been described as a turn-around guru. What would you describe as the secret of your success and what are your projections for the alcohol beverage industry of the economy in the next 10 years?
My own perspective about business is about keeping it simple and focusing on consumers and what you are offering to them.
Also, focusing internally on the cost profile of your business so that you make money and also price right. The environment is also key and that is why I always say to our teams, let’s influence our environment. What is in our control is our strategy. Make your strategy simple and be focused on managing the big risks. By broadening our portfolio, we have mitigated the risk of volatility in the growth profile of our business. By reducing cost, we have mitigated the risk of our inability to price right and also have reduced volatility on our profit, by taking out debts we have also mitigated that risk. On one hand, we have improved our execution and strategy. If the strategy is right and you don’t bother about how you execute it, you don’t get the desired result. For me, I have also learnt very well. For example, when I was in Guinness Ghana and we were able to manage this by surmounting the challenges of FX crisis. I have worked in a consulting firm where I garnered competences in the areas of finance and strategy and with this; I am able to manage most of these crisis.
I have also worked in many businesses in Diageo across various functions in Africa and Europe. Volatility is an area that modern leadership has to be able to manage. In most cases, people get overwhelmed, but ability to manage this is an important leadership quality. I remember in the darkest moment, when things are very tough and you will be like, will this thing work. At this moment, you have to believe in yourself. Keep telling the team to believe. Sometimes, you have to source resilience from what you have seen in the past and what you believe in the future. Really, it is about remaining positive. That is why everyone is celebrating the exit from recession because we all believe in the future of the nation’s economy. So being positive is a critical element of management during crisis. You have to come out better than the competition that were not in crisis. You have to be bold during times like this. The natural reaction during recession is being defensive rather than being offensive and confronting the challenges. In terms of the future of the brewery sector in the next 10 years, if you look at the country, it is vast, but the per capital income is still low compared to other countries. From the consumer perspective, the prospects are still very strong. Businesses are also investing at a time the economy is troubled. It tells you that belief in the economy is still strong. The per capital consumption of alcoholic and non-alcoholic drinks is pretty low in Nigeria for the population the country boasts of.And if you look at the demographics, it is a growing population; you have about 3 to 5 million people turning 18 annually. So that tells us that the available consumer base is there, but we just need to offer the right product and the right price.
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