Thandalam Dayanand is the new managing director, GSK Consumer Nigeria plc. In this wide-ranging interview with , BusinessDay’s senior analyst, Dayanand explains how he expects to sustain GSKs growth over the next decade through a three-pronged strategy of products diversification, route to market and building home grown talent. Excerpt:
There seems to be a lot of pressure on FMCG goods manufacturers this year. What is driving this pressure on the industry and is the consumer tapped out?
Given the pressure on the disposable income, my guess is the consumer are choosing their most important stuff to buy, and making the hard choice on what not to. We also are seeing a certain reduction in consumption or drop in the frequency of consumption, basically saying we are going to postpone buying this.
The third quarter was okay for us; however it is only in the last three months that we started seeing this pressure. Given that 70 percent of our products also depend on drinks.
The moment it starts raining the consumption of Lucozade will go down. That is for us, I am however not able to comment on the competition. However, between October and December, we are sure it will be much better than the third quarter. I think we should close the year pretty strongly.
Your top line grew 9 percent but bottom line dipped by 18 percent in your most recent quarter. What is the biggest reason for not being able to translate that top line growth to the bottom line?
There are two reasons why our profitability is under pressure. One, the arrangement with the new owners of Lucozade and Ribena means we share some of our profits with them.
The second one is the exchange rate which impacted us a bit. However, if this was not there, we would have actually grown profitability much better compared to the nine months of last year.
These are primarily the two reasons: One of the reasons (from our perspective) why we are looking at driving Panadol and Sensodyne, Horlicks and Macleans, along with drinks ,this will add tremendously to the profitability of the business.
For example on Lucozade we have about 41 percent market share, but in Panadol we have just 16 percent. So there is huge room for growth and that is what gives us the excitement, that there is a big room for profitability to go up.
Considering, you are putting a lot of effort on Lucozade, Ribena and you have to share the profit. Are you thinking of disposing of these products?
The sale of Lucozade and Ribena was a strategic shift in the company’s direction, so while we are a plc, we are still affected by the direction of the global phase.
What is good for the plc here is that for the next 10years we get to manufacture this here for this market. So in a way it is a win-win and the plc gets to share the profit little more otherwise the profit level would have been further down, if the two brands were completely removed from our portfolio of products.
Our biggest job now is to start building the rest of the portfolio, so that at whatever time the two brands will move out, we still have a company which is profitable, stable and good.
Those are the two pillars which will continue to turn the business prospects to, so that is what is driving it, so you have a broader base on which to drive profitability.
Now you have gone ahead to make additional investments in your operations; how is that translating in terms of capacity utilisation in your factories?
In the last two years, for example we have invested in the Lucozade cans, and we still have existing plans to have sufficient capacity on the cans.
Some of these investments are for replacing old lines because as the lines get old the cost of goods produced start increasing.
This is the case for example in local manufacturer of Panadol now that is more in terms of our objective to drive these brands up so I think in the next two or three years they start reaping benefits. For capacity we don’t have an issue.
Can you give a number on projected capital expenditure for GSK in the next two to three years?
This is the time we are actually writing the next three years plan. It is still in progress but between the last four to five years we have invested a lot.
The rate of investment will not dramatically come down; we will want to continue to invest in the plc especially giving our ambition on Panadol and Horlicks, on oral care we will want to continue being there.
We still see there is room for growth. The more we depend on imported product; I think we will be under pressure on the whole exchange rate thing, so localisation is an objective which the company tries to drive and we are committed to that.
What is your biggest input cost?
I think for us, a lot of it is around energy. Then there is the currency fluctuation that happened on some of what we import, which kind of affected us. Energy we still manage in terms of how best to run our lines. These are the two big costs for us. There is no easy answer; we just have to continue to manage it.
There has been these complaints about the influx of foreign manufactured products into our country which is stunting the growth our local industry, how much of a problem is that for you?
There are two problems. Firstly, it discourages local production and secondly, counterfeit.
These two problems are what we face. In both these cases I think the government loses, because as a company you pay taxes and contribute to the local economy.
We work a lot with NAFDAC, and various enforcement authorities to mitigate this problem in terms of sharing with them what we feel, it is very helpful, in helping us.
But we continue to engage with the authorities in terms of giving them facts. As of now, it has not been sorted out, and I don’t think there is an easy answer to resolve this issue.
When we invest in an additional line here, you invest in developing the local economy and job creation; however the counterfeiters do the opposite. We are in Nigeria for the long term.
Beyond the Nigerian market, you have the West African market pretty much to yourself. Do you see opportunities there for Nigerian based manufacturers?
I am responsible for the Nigerian business; I do not go beyond Nigeria but GSK (for example the Pharma business) does a lot of sales in the West African market. It is a pretty strong market for GSK.
In terms of funding, under the last MD there was a plan for the parent company to increase its stake and invest in the company. It wasn’t a very popular move for the shareholders and it was eventually suspended. Do you see that scheme of arrangement coming back anytime soon?
At this time no. In terms of status quo it is the same. The parent company may wish to revisit that issue at a later date, but as we speak, it is still the same.
As the MD of GSK today, what specifically are you looking to change in the company?
One of the biggest things is to diversify our portfolio away from 70 percent of sales coming from drinks. So let’s say this quarter, it rained hugely and if sales slow down the entire company slows down.
Hence we have our focus on Sensodyne, Horlicks, Panadol and Macleans.
The second thing is route to market. The country is huge and the consumer, who is out there in a corner wanting one of our products, has to be able to reach our products, then his trust in our company becomes stronger.
So route to market is the next big thing we want to invest in. We have strong route to market on drinks, but for the four brands I mentioned we will continue to invest.
The third biggest thing for us is talent. I don’t think we will dramatically change anything, even in the past GSK has invested a lot in talents, and we have people from Nigeria, working in very senior positions outside the country.
That is a commitment we will continue to make.
How much work are you doing or what strategy are you putting to ensure that you work with the Nigerian Dental Association, so that dentists in Nigeria give preference over Sensodyne produced here?
Globally speaking, Sensodyne is a very successful brand. We have been speaking with the consumer directly on what sensitivity is. Our team also meets regularly with Dentists.
We will continue to scale it up and directly engaging them. Secondly, in terms of creating awareness, I have sensitivity but years back, I use to have pain in my teeth, I never knew it was sensitivity, I used to avoid ice cream and coffee until such a time a dentist recommended sensodyne for me.
Our aim is creating awareness to the consumer on sensitivity. So hopefully between the two we should be able to speak to them in terms of creating trust for the brand, and value.
GSK is a very big company. In the next 10years how is G.S.K planning to manage the company in case it loses Lucozade and Ribena as well as consumers loyal to those brands?
We work together as a franchisee. They own the brands; we invest and market our products. So overall the profitability will continue to be protected.
Right now we have the rights to these brands for 10 years, we will then have to build other pillars of growth, as there are other global brands GSK has and we will bring that in the next few years.
So by that time the rest of the business would have grown strong enough to carry the growth of the company. So that is a two pronged strategy that will bring diversity to the business.
What are the strongest growth regions for your products in Nigeria?
Lagos and the East are still are still very strong for us and they continue to grow on all parameters.
What opportunities do you see in Nigeria and how will you compare the Nigerian market to other similar markets?
Healthcare is a very wide area for growth, it is an amazing opportunity. Over many years, the standard of living is growing up across segments. One of the things that happen is that people aspire to buy better facilities example refrigerators or cars.
They also aspire to give their children a better future. In term, of either food, medicine or preventive health, so we see that as a huge opportunity, and I am sure the government will continue to invest in health care in the country.
So together, given the strengths of GSK which is oral care, wellness and our nutritional drinks like horlicks and our skin care business, as the country rises GSK fortunes will also rise.
Source : BusinessDay