Glaxosmithkline’s Regional Head for Asia, Middle East & Africa, Mr. Zubair Ahmed recently visited Nigeria. He spoke to Goddy Egene on the company’s business and the Nigerian economy as a whole. Excerpts:
Glaxosmithkline Consumer recently divested its drinks business in Nigeria. What informed this decision and how are you ensuring that it does not affect the performance of your business in Nigeria?
The divestiture was part of our overall strategic plan that has been in place for quite some time now. As you look at what we call the construct of what we called the GSK Company. What has changed is that we have a joint venture with Novatis, and the entire positioning of the new company is one of the world’s biggest over-the-counter (OTC )and healthcare companies. So in keeping with that focus globally, for Nigeria, for strategic reason to bring that focus on the global portfolio, we took that decision of divestiture. So I fully agree that the divestiture affected some of iconic brands and people love those brands. It is a big part of the business and therefore, how are we going to restrategise from a shareholder perspective and continuing to grow the business and be profitable and provide shareholders return.
We had to conceptualise it in global GSK positioning of its brands, which is very important. Today we are the leading OTC wellness company globally as a result of the joint venture with the Novartis and GSK. What that joint venture has done is that, it has given us close to 14 brands controlling global business in excess of 100 million pounds. So we have powerful brands and what we have done with some of brands, they are number one, number two, in each of their categories we compete in. In most of the markets, you have tropical with brands coming from Novartis, again number one in most of the East European markets, including Germany.
In respiratory, we got the brand called Otrivin, which is nasal decongestion and again, the number one brand. So what I am trying to tell you is that we got the number one, number two powerful brands in our global portfolios. Right now in Nigeria, you see Sensodyne, which is number one, Panadol, which is one of the leading brands. Apart from that in Nigeria, we have not really leveraged our global assets. So, to answer your question how we will bridge the gap short term, and long term and create shareholder value, it will be in a gradual phased manner, leveraging its global assets based on local insight. Some may not be relevant to Nigeria but I think I have spent two days here and I think most of the brands will be relevant and we look at the feasibility of launching them in a phased manner.
So that is one approach from a brand perspective. The second approach is from a route to market or getting access to our brands. What this divestiture does is bring a very focus approach in the way we market and distribute our brands, which is in line with our global positioning. So that focus on route to market along with the leveraging our global assets will give us the confidence that going forward, we should be able to bring this business back to where we were and in fact take it further.
Given the fact the Nigerian economy is struggling to survive, how is the parent firm going to support GSK Nigeria to make sure that you remain a leader in the industry?
Obviously, it will not only be GSK but all other multinationals operating in Nigeria. The impact of the slowdown and naira devaluation is going to have effect right across. But from GSK perspective, we will be doing a couple of things. First is to see, depending on the equity of our brands, what is the flexibility in taking price increases because even the Nigerian consumers are aware of this and given the nature of the business, they would expect prices to go up. First will be what leverage exists in taking up prices. Second, is how do we source our products.
Do we reduce the cost of our products so that the full impact of the devaluation is not passed on to the consumer?. The third option is to look at the way we are organised, the way we approach the business and what savings potential. So the short term is to help keep profitability of the business growing. Long term is what we feel as a company and being associated with Nigerian for over 45 years is cyclical in nature. The moment the oil prices start coming up, the economy kicks back and you will see growth and of course is business as usual and we expand and so on. But I think what you are talking about is very short term reaction to the devaluation. Basically, how can we operate in the most cost effective manner.
Despite the current headwinds, there are still growth potential in the Nigerian economy, what is GSK target investment in the country for the next few years.
I think that investment is output of the strategy. Right now, one of the strategies is in context of what is happening in Nigeria, which is the slowdown, the devaluation and so on. How do we re-strategise our Nigerian business, positioning each product and pricing. Some products may not make any relevance anymore. So, once we agree on the strategy, then we come to the second phase as to what the investment model will be. So it will be very difficult for me to tell you what the investment going forward will be because that will be a function of the strategy which we will jointly agree for Nigeria.
One of the key issues that play a lot in businesses like this is technology. Looking at that, how is GSK bringing advanced technology into your business here and how are you transferring this technology locally?
Firstly, from consumer perspective, all our brands are global brands. All our innovations are global innovations. So whatever is the technology leading to the innovations within our products, we make that available to the Nigerian consumer. So Nigerian consumers get all model of global brands coming in. We innovate, those innovations are global and they are passed on to the consumers. Secondly and obviously we are considering what we are to manufacture locally.
We are looking at Sensodyne, Horlicks, Andrews, Panadol. So as we bring more local productions, the technology will come. Lastly, as an organisation, we are global in nature so people who work with us, and we are pretty diverse. A lot of Nigerians work there and they definitely travelling to many places wherever the technology is sitting, working with them, bringing those technology. So, both from product perspective, the Nigerian consumer will access our technology. And whatever we decide to produce locally, technology transfer will happen and thirdly, we have people working in the organisation on the research and development side who will be travelling, learning those technology and transfer them locally.
Amidst these challenges, does GSK still have plans to increase investment in Nigeria?
As I said earlier, we have to approach it from three or more levels. First is the way we are organised. Is it the most effective way? So that is at organisation level. The extension of that is our coverage model, what we call the route to market. With the downturn, what is the most cost effective route to market model. Subsect of that is how do we reduce the cost of our product, either through local sourcing, or value re-engineerining so that we can have the full impact of the exchange rate not passed on to the consumer, so that we as a company remains profitable by reducing our cost base and for the Nigerian consumer, that he or she does not have the full impact of by cost saving methodology. So these are the broad areas we are looking at. What, again, the finance strategy will be is what we are yet to conclude. We are still in discussions. We will refine it and very soon it will be in public domain.
Because of the challenging environment, most companies listed on the Nigerian Stock Exchange (NSE), including GSK, are reporting lower revenue and profitability. What are you doing to ensure you remain afloat and deliver modest performance going forward?
The reality is that companies will see a shrinkage. So, either from a shareholder perspective or analysts perspective or readers perspective, they will see shrinkage right across. The growths companies have been achieving in Nigeria will slow down. The second part of your question, which is profitability, from all I articulated earlier, in terms of how we can produce at lower cost, how we can produce locally, how can we restructure to reduce our operating cost, how do we go to the market. Can they be contracted or shut down to bring down the expenses. So we are looking at all those so that the business could be relatively smaller or could be growing smaller but we remain afloat and remain profitable from a shareholder perspective that is what they really look at in terms of value creation.
In times like these, companies introduce strategies because the consumer power is going down, general inflation and all. Are there ways GSK is thinking to empower its consumers to increase patronage?
What do you do because the disposable income reduces, alright. And therefore the normal trend you find is people go for smaller value packs. Therefore, if you look at our strategy already, if you look at Horlicks, these are in sachets packs. Maclean, we are looking at sachet packs. So across our portfolio, what you will see more is that, without diluting the efficacy of our products, because they are used by consumers for the benefits they get. So we do not want to dilute the efficacy, whether its body pain, fever, but how can we reduce the gashing as we call it, so instead of N10 pack, can I give N1 pack so that we do not lose the consumers and and recognise the disposable income as the money in their wallet reduces. So you will see more of this coming through.
We have given reasons for divesting from drinks business. But are there plans by you to bring in new products as replacement for those brands?
No. The divestiture is strategic. It is not a question of economic decision that the business was not making money. It did not fit into our global portfolio. Nigeria was the only exception in the beverage market. Our focus globally is that GSK globally compete in five categories, which is pains, respiratory, skin, oral healthcare, and digestive. These are the five categories that we compete globally. Nigeria was a bit of an aberration. What we have done has brought the portfolio synergized. We will not be getting into functional beverages. We stick to these categories for now.
Now it is very obvious that all companies will record lower revenue and bottom-lines. What is you assurance for shareholders of GSK will still pay dividend at the end of the year?
Firstly, the shareholders have visibility to the micro economic scenario which is happening. So from my mindset, they should expect that the revenue will go down, the profitability, short term, will go down. But as I spoke to you earlier, the team will put a strategy together, which will be approved by the board. And that strategy will be how can we ramp up as quickly as possible the top-line and keep the profitability of the business growing so that we can pay out the type of dividend we have been paying in the past.
Some time, GSK made an attempt to increase its stake in GSK Nigerian but it failed. Are there plans to repeat this attempt soon?
No. That plan has been put on hold. We are very happy partnering GSK Nigeria Plc. We want to remain a PLC in the market and we want to Nigerians healthier. We are comfortable with the current ownership arrangement here. As we increase the business, we want to make sure that we make good returns to shareholders and parent company. So we will review that in the future. But for now, no plan to increase our stake from the current level.
You have been in Nigeria for days and you oversee businesses in Asia, Africa, given your experience and seeing the challenges companies are going through in the country. How do you think the companies could be supported to perform better?
My area of responsibility is across emerging markets and you see this up and down in the emerging markets very so often. You look at the Indian market, Chinese market, Malaysian market, Indonesian market, all of them go up and down because of the very nature of the way the economy is structured. Indonesia relies heavily on oil Malaysian relies on oil, Middle East, again, relies heavily on oil. So when the oil prices crash, the economy goes into turmoil. So this is a cyclical thing, which we are quite used to. What we do very well as GSK is how quickly you can adapt business model in a downturn without pulling out investments but ‘contract’ to keep the profitability of the operations going, which is a short.
We are very good at that and that is what we are doing. But we have definitely, a plan in place, which is our full blown strategic plan for Africa, Malaysia and China. As soon as things turn around, we stay invested and just expand our footprint and is business back as usual. So we intend to adapt, re-strategise and keep the equity of our brand, which is the most precious thing we have and our people. So we make sure we hold on to our talent, loyal consumer and do not dilute the equity of brand. These are the two things we leverage, the strength of our brand and the strength of our people. Any business, if you have these two, I firmly believe, you have a recipe for success.
What will be your final message for your stakeholders, comprising workers, consumers and shareholders?
To my organisation, obviously, it will be a function of resilience. We believe in Nigerian economy because I have seen this economy for 30 years. I find it very robust because it has hardworking people with over 150 million population. My message to company is stay focused, stay resilience, this is a temporary bump, we will have a strategy which will take us over the bump and the good days will roll back again. From a shareholders’ perspective, who are a bit more dividend and return focused, obviously, we are here as a company for a long haul. We are not short-term. We believe in the Nigerian people, we believe the economy will bounce back.
We are working on a new strategy to maintain probability. For consumers, most of them believe in the brands and the benefits they bring to them. So as long as you have sensivity and Sensodyne is what you believe in and that helps you, the trust consumers have in Sensodyne, in Panadol, Andrews will keep us going. And in our strategy, we make sure that equity is not diluted. We do not fool around with our products, we do fool around with our formulations because the consumer and the consumer health and wellness is of extreme importance to us.