Recently, BUA Group unveiled BUA Foods, a new entity under which the Group consolidated its five food businesses. After the launch, the CEO of BUA Foods, Ayodele Abioye, granted an exclusive interview to a select group of editors on the consolidation, planned listing on NGX, and future outlook, among other issues. Excerpts:
Thank you for this opportunity. Can you introduce yourself sir?
My name is Engineer Ayodele Abioye. I am the CEO of BUA Foods, an agribusiness and food processing conglomerate and member of the BUA Group.
Can you briefly give us an overview of the foods industry and where BUA Foods currently stands?
We play in the foods sector and we are one of the big players. We have footprints in five key businesses, talking about sugar, flour, pasta, rice, and edible oil. We have investments in these businesses in various parts of the country. BUA Group has been in existence for over three decades now, with business interests in various sectors, one of which is agribusiness and food processing. We have business interests in mining, oil and gas and other areas. Today, we are talking about bringing all the five food business divisions together under one umbrella to be called BUA Foods PLC. This is because of the opportunities we have seen ahead of us having built the brand to the extent to which we see it now. We want participation by more investors, local and across the continent, and the world
Chairman of BUA rolled out some of the accomplishments and plans across the country. In spite of BUA Foods’ efforts and those of others, food inflation continues to be a huge challenge. How will this consolidation and listing help to address this challenge?
As you heard the chairman mentioned, our brand value is such to reckon with. We are a business with a mission to make impact in whatever we do. And in making this impact, we hope to affect our stakeholders positively, including our shareholders and our consumers. One of the things we are best known for is the fact that we offer our food products at highly competitive prices. In fact, we beat many other offers in the market in terms of quality and reasonable pricing of our food products.
On the value of the business, as the chairman has mentioned, we see a business with the high potential to give a high return on investment. This year as a business we are trending N200 billion in revenue and almost a N100 billion in EBITDA (earnings before interest, taxes, depreciation and amortisation). Who else can beat these numbers? And next year, we are looking at about N500 billion in projected revenue and almost about N150 billion in EBITDA. So, if you look at the ROI, BUA Foods is bringing value to interested investors.
Of course the challenges are there, in terms of food insecurity and others. Notwithstanding these challenges, however, life still goes on and food remains a basic necessity. Our role as an agribusiness and food processing business is to make food available; it is to use our expertise, both internally and externally, to engage with all stakeholders to make it available. As a nation, we want to feed ourselves and BUA Group has been part of the solution and we want to continue to play a pivotal role in the nation’s food security drive.
How do you source your raw materials for your food businesses, is it through importation or backward integration?
The supply chain for our raw materials is two folds; we import some of the raw materials we need. For instance, we import raw sugar and refine it. This has been the process for Nigeria. Recently, the sugar backward integration programme was instituted and BUA Foods is one of the companies leading in the backward integration programme. We own a 20,000-hectare plantation in Lafiaji, Kwara State. We have other plantation sites we hope to acquire as part of our future plans, almost about 50,000 hectares. These acquisitions are to ensure we generate our own raw materials locally.
As the chairman mentioned earlier, we have the water, the land, the people, we have the natural resources, and the environment is good geographically for us to be able to grow our needs, not only in terms of sugar but also in terms of grains. As you know, government is also trying all it could to promote the backward integration agenda, and BUA Foods is fully aligned with the agenda.
We believe strongly that as we key into the backward integration programme of government, we are also able to reduce pressure on demand for forex and importation of raw materials. We are also helping to create jobs that way. The plantation in Lafiaji is helping to create 10,000 direct jobs, boosting household incomes, and thereby helping to reduce the unemployment load on the economy as well as lessen the insecurity situation.
All of these put together is helping to position us to be able to address some of the concerns earlier raised about food inflation in the country. Again, if you look at rice, it’s the same process. We have the anchor borrowers’ programme that is trying to encourage more rice farms in the country. Now, rice is no longer imported, we rely fully on what we can produce locally, which is encouraging more rice farmers to participate in the value chain. We believe strongly that if we extend this to all our products, we would be in a position to exploit extensively the natural resources that God has blessed us with.
You talked about the rice value chain; you talk about the out-grower farming, what about the milling?
Milling is not a low entry barrier business. You have to have the capacity to invest in milling. We are one of the businesses that have invested heavily in rice milling. We have over 200,000 tonnes yearly capacity to mill rice. What that means for the rice out-growers is that they have a ready market for the rice they grow.
How is BUA navigating the negative impact of insecurity in the country in terms of its farm assets as well as the COVID-19 issue? The question of insecurity is particularly relevant considering that many farmers have been chased out of their farms by bandits.
The insecurity situation is affecting every business in the country, not just the foods industry. If you look at it from the farm experience, of course we know that food is impacted in a way. We are not insulated from the problem. However, luckily for us, our plantations are located in a safe zone. We pray it remains so. Notwithstanding, we continue to monitor situations and adjusts as required. We believe though that some of the efforts put in place by the government to address the insecurity issue will not allow it to keep escalating. And we believe that over time we can take the best opportunities that surround us.
More importantly is that if our unemployment rates can be attacked in different ways, creating jobs for people and they have a means of livelihood, I believe we would be taking them off crime. And BUA would have been contributing to the effort to reduce crime, which would then enable people to contribute positively to society. Keeping the youth engaged through employment is our own way to help stop the insecurity in the country.
Regarding COVID-19, it has impacted every business, both from the upstream and downstream ends. From the upstream, that is the raw material supply chain end, commodities supply was disrupted due to the pandemic. But at BUA, we have managed to maintain supply continuity from our key suppliers and we haven’t had any major outage or disruption, except when we had local challenges around port clearing and quotation in terms of our raw materials. The reason for this is that our inventory management system is top-notch, which enables us to maintain enough stock to keep us running till the next ship berths.
On the downstream side, there’s not so much disruptions because government recognised that food is essential and during the lockdown restrictions, food was one of the areas exempted. So, we were allowed to operate our factories and move our products through the value chain. In terms of our people, because you know we value our staff, we make sure we safeguard their health. As you know, the BUA Group has done so much in terms of COVID-19 support and palliatives. As we speak, all our staff are 100% vaccinated, including their families, which is primarily the effort of the BUA Group, because we care as a business and we realise that without our people we cannot make the kind of impact we are making today.
After your listing, you plan to have your public offer next year. Why should investors key into BUA Foods’ PO; what is the attraction?
You have a business that is very valuable. We are moving from a N300 billion revenue business to a N500 billion plus revenue business next year, once our investments in the sector begins to yield fruits. Our EBITDA is moving from N100 billion to about N150 billion. Looking at these figures, we can realistically expect more than 10% returns on investment. How many businesses can give you that kind of returns today? That is the value we are bringing to the table.
If you take a step backwards and ask yourself how are these going to be achieved? We can look at it from different angles. One is that through our backward integration programme we are able to commission our plants, use our plantation to generate some quantity of sugar that we need. We are talking about 200,000 metric tonnes that would be refined in our plantation in Kwara State, which would save us some forex on importations. The saved forex can be deployed to buy additional raw materials for other products, for instance.
The second leverage is the export opportunity we have. We are the only food business with a refinery in an export zone, meaning that we can readily take advantage of the ECOWAS free trade zone as well as the Africa Continental Free Trade Area (AfCFTA) agreement. What this means is that we also have the potential to generate foreign exchange, which can then be reinvested into the business for expansion in terms of more raw materials and capital expenditure as we require.
How prepared is BUA Foods for competition and ensuring sustainability of the revenue figures you just gave?
The agribusiness and food processing industry is a fledgling one. There is so much room for growth for everybody that I dare say that there is no industry competition today. Our population is on the rise, and the question is, is there enough food to feed the population? Right now, we are in a situation where the demand is higher than the supply. Whatever I produce today will be taken up by the market, so why do I need to worry about competition. The only competition we have in the industry today are the foreign goods, which we want to ward off. Today, some people still smuggle in sugar and even rice. And this is simply because demand is greater than supply.
If players are able to meet or even exceed demand, prices will fall, simple law of demand and supply. And this will enable everybody optimise their value chains.
For us any excess can then be exported, which is where we have an edge over others as we are already positioned for the export market. If we do have excess supply, this we can push to other West African markets.
What’s the outlook for the business, in terms of listing and public offering, considering that next year election fever will dominate the economy?
In business, you always have to contend with risks: liquidity, environmental, regulatory, management, staffing, political, just name it. We can’t close shop because of risks. What is important is to have strategies in place to mitigate whatever risks the business encounters. We are a very resilient business, and we would always find a way to tackle the challenges that come our way.
