BusinessDay
Nigeria's leading finance and market intelligence news report.

As old as Nigeria, FanMilk mirrors business environment in 6 decades

Nigeria’s independence 61 years ago coincided with FanMilk’s inception year in the country with the most people in Africa. The growth trajectory of the producers of some of West Africa’s choicest dairy products reflects the different trends the Nigerian business environment have seen since it gained freedom in 1960.

From reporting negative annual Gross Domestic Product (GDP) growth in 14 different years since independence, the top crude producing nation in Africa has recorded 47 years of economic expansion.

Like the few companies that were established during the early days of Nigeria’s independence, FanMilk Nigeria Plc has stood the test of time as the company continues to achieve milestones despite some of the curveballs that were thrown at it during the almost two decades Nigeria reported annual negative growth rate.

Erik Emborg, the Danish entrepreneur who was shuttling between Denmark and Brazil in the interest of his brewery business during the late 1950s, created a sister company to the Ghanaian business, FanMilk Nigeria Plc in 1960 with a recombination plant at Ibadan and a distribution centre in Lagos.

Similar to the Nigerian economy that expanded by 510.65 percent to $375 billion in 2020 from N61.41 billion when the country gained independence, Fan Milk Nigeria has grown, reflecting how many other businesses in Africa’s largest economy has fared in the period under review.

Less than two decades after it first established its footprint in Nigeria, FanMilk introduced yoghurt drinks, ice lollies, ice cream and new Tetra Pak packaging technology. The products became very popular in the market that it generated the financial strength to set up further depots and, in 1981, a second recombination plant was set up in Kano, a state in the northern part of Nigeria and Nigeria’s second-largest city after Lagos.

The expansion and rehabilitation programme strengthened FanMilk’s profitability. FanMilk has sister companies in Senegal, Togo, Benin, Burkina Faso and Code d’Ivoire. The headquarters of the foreign partner, Fan Milk International is situated in Aalborg, Denmark but has its Africa headquarters in Ghana.

Read also: Nigeria@61: Agriculture and the burden of diversification

Having been producing high-quality dairy products to all Nigerian since 1963, the fast-moving consumer goods company in the business of manufacturing, distribution, sales and marketing healthy dairy and juice food products with offices and distribution channels across the length and breadth of Nigeria has a strong heritage of 59 years of manufacturing ice cream, frozen dairy and ambient drinks in Nigeria and West Africa.

It is amongst the legacy companies established in the old Western Region of Nigeria and it is still carrying on operations in Nigeria and currently employs over 800 persons, out of which 421 are full-time employees who work at the factory in Ibadan.

Its unique ecosystem also contributes to economic empowerment as it currently engages over 12,745 vendors and over 1,200 agents who sell its frozen dairy products in the nook and crannies of the country.

The company pride itself as one of the few companies in Nigeria that has a unique footprint and impactful business in its Country’s ecosystem.

Fan Milk is also toeing the line of organizations that are supporting the going green which supports the “save energy gas” initiative. The company is working at reducing the use of bi-fuel, in the years ahead. Instead, it will work on using solar panels in our buildings to generate power as against using power. They are embarking on a new ice cream kiosk that will be powered by panels that will be used across the country to reach consumers.

The company’s remarkable performance over the past six decades has not been without challenges. The company’s operations in Nigeria have also had their tough times following some of the hurdles that affect doing business in Africa’s largest economy. Some of which were due to macro-economic challenges.

One of such scenarios is the 2020 performance which was affected by the impact of the COVID-19 pandemic that forced Nigeria to lock down some of its economically viable cities to curtail the spread of the novel virus.

Although there was improved demand for Fan Milk’s products in the final quarter of the last year as consumer confidence recover, overall revenue for 2020 dropped by 12.0 percent year-on-year to GH₵ 373.58 million (N25.32 billion).

This was attributed to unfavourable performance in the earlier part of the year as a result of the coronavirus pandemic, which significantly limited the movement of people including the company’s sales rep who use bicycles to penetrate communities and local markets.

Fortunately, Fan Milks said its management kept a tight lid on expenses amid the covid pandemic. A drop in the cost of sales was one of the management’s strategies.
Operating expense dropped by 15.3 percent year-on-year to GH₵ 121.79 million (8.26billion) in 2020 on the back of a significant cut in administrative expense (33.9 percent in 2019).

However, the company’s earnings were ultimately affected the top line figures declined.
Profit before tax dropped by 97.6 percent year-on-year to GH₵ 0.8 million (54.3 million) while the profit after tax went down by 97.6 percent year on year to GH₵0.60 million (N40.67) in 2021, the worst full-year the has ever declared since BuinessDay started tracking its data in 2005.

The re-opening of Nigeria’s economy and in many other countries where it has its businesses means the diary product manufacturer is likely to return to its pre-pandemic levels.

Commenting on the trends of things in the last decades as it affects the company, one of Fan Milk Managing Directors, Steen Hadsbjerg said “There have been ups and downs for us like every organization; some of these challenges include poor power supply, bad road, high cost of raw material, lack of raw material etc. However, the focus for the next 50years will be to ensure we have a sufficient supply chain throughout the country through upgrading distribution centres in Nigeria.”

Across the different sectors of the Nigerian economy, from agriculture to finance, energy, health, media, and aviation to mention a few, businesses in Nigeria have recorded tremendous growth. This is evident in the real GDP figure which has grown by 677.05 per cent to N477.16 billion in 2019. For this reason, BusinessDay spotlights the businesses in Nigeria in 60 numbers.

The challenges faced by the company that was acquired and owned by a joint partnership of a world food processing company Danone and Abraaj, a private equity firm is the same for many others that operate in Africa’s largest economy.

“Nigerian economy remains well behind its age,” Ayorinde Akinloye, a Research Analyst at CSL Stockbrokers said, linking the reasons to “poor economic policies and in some cases poor implementation of economic plans by economic managers.”
While acknowledging the fact that Nigeria’s economy seems on track, Akinloye explained that the country’s economic managers should cease from making the same mistakes that the “current economic powerhouses made in the past” as they should have learnt from their experiences.

BusinessDay’s analysis of World Bank’s data put Nigeria’s average economic growth between 1961 and 2019 at 3.78 percent but analysis for the last decade shows the economy of Africa’s most populous country has been deteriorating.

For instance, economic growth in Nigeria averaged 1.2 percent between 2015 and 2021. The problem with that is the population grew two times faster at an average of 2.6 percent per year. Those five years were a painful squeeze for Nigerians who grew progressively poorer, as economic growth was too slow to create sufficient opportunities for a rapidly rising population.

For over 180 million Nigerians who are not fortunate to be among the 10 percent of the country’s rich cycle, a deteriorating economy means a tough standard of living.

The GDP per capita level in Africa’s most populous nation has seen diverse fluctuations over the years to $2,387 in 2019, about 1 percent decline from $2,396 in 2018, according to World Bank statistics.

This amounts to about N862,000 per year (using the exchange rate of N361 for those years), N72,000 per month, and N2,400 daily (assuming 30 days monthly).

When considering Nigeria’s inflation rate which has mostly been at double digits, particularly, the last four years which saw an average of 13.9percent within the years 2016 and 2020, the country’s per capita income of N2,400 daily is grossly insufficient due to eroded purchasing power.

The most recent report by the National Bureau of Statistics (NBS) reveals that Nigeria’s inflation rate stood at 17.01 percent in August 2021. Though it slowed for the fifth consecutive month, it was, however, higher than the 13.2 percent reported in 2020.
The high cost of living in Nigeria which has continuously been on an upward trajectory has made it almost unbearable for millions of Nigerians who have become poorer due to lack of jobs and poor earning capacity.

Exacerbated by the outbreak of COVID-19, Nigeria’s joblessness rate of 33.3 percent in the fourth quarter of 2020 is 6.2 percentage points higher than the 27.1 percent reported in Q3 2018 and 25.9 percentage points more than 7.4 percent recorded in Q2 2014.

Since 2017 when oil-dependent Nigeria emerged from its first economic recession in five years (exited the second in 2020), not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.

“Nigeria has demonstrated that the private sector remains the most organized controller of resources. Thus, the government needs to allow the private sector to control more resources in the country while the public sector acts as a policymaker and regulator for checks on manipulative practices,” a Lagos-based analyst said.

Long before the pandemic started spreading across the globe late last year; Nigeria’s economy had been gasping for breath for five years.
While health experts have warned that persons with an underlying health condition are likely to contract COVID-19, economists have explained that countries with underlying economic challenges are expected to be hit the most by the impact of the pandemic.

Nigeria retains a long list of economic reforms that can unlock economic growth and reduce poverty but have been stuck.
Decrepit infrastructure and the lack of a functional rail system, for example, means Apapa, which houses Nigeria’s main port, remains a crying shame.

Whatsapp mobile

Get real time updates directly on you device, subscribe now.