Fidson Healthcare Plc held a breakfast meeting with shareholders to provide details of a N3 billion rights issue.
Nairametrics had an exclusive interview with the Founder/Managing Director, Fidelis Ayebae.
Issues discussed included the company’s 9M 2018 results, qualities he considers when hiring staff, reasons for the rights issue, and his vision for the company in the next 10 years.
Increase in energy costs and personnel costs
In response to a question from Nairametrics on what led to an increase in energy and personnel costs in the months ended September 30, 2018, Ayebae attributed this to the biotech plant.
“Basically, it’s the biotech plant, which is powered 100% by diesel and gas generators. We did not use NEPA at all. The machines are too sensitive to NEPA. Because of spikes from the generators themselves, we have also had to install UPS that cost over N300 million, so we don’t have downtime for those machines. On energy alone, we spend about N100 million a month to power it.
“In order to then maximise the cost of power, we have had to increase capacity on some of the lines. Those will require manpower, so manpower will also increase. From a staff strength of about 700 and something total one and half years ago, we are now at 1,060 people in 2018 coming into 2019. This has contributed to that.”
“It is compensated by the number of products that will be churned out from the biotech plant. The number of products meaning more SKU infusion products, more ear drops, more eye drops, more tablets that are sugar coated and film-coated coming out.”
Ayebae also gave a break down of how long it takes to develop a product.
“Gestation time is 12 months. For every product that you see out there, it takes a minimum of 12 months. It takes about 6 months to perfect your formulation, and expedite your stability studies. In other words, do accelerated stability studies.
“When you find that the product is stable and okay, that is where you do your shelf life estimate. It is after that you begin the process of registration, which takes 6 to 9 months.”
People are key
“In all of these times, the people are working. You can’t fire them, because this is a scientific space. You can’t afford to lose manpower, the way you lose in say, a service business. Otherwise, you don’t exist.”
Reasons for the rights issue
Ayebae also disclosed why the company was going for a rights issue.
“One of the reasons we are going for this rights issue is to have at least a billion naira that will be used mainly for the importation of raw and packaging materials. When we import ourselves instead of buying from importers, we are able to save between 12 and 20% cost.”
“If the rights issue is successful, which it will be, we will then be able to not only have access to funding for FX, but hopefully warehouse FX with suppliers abroad so we can give them say, a year’s contract for specific raw materials, and pay in rotation.”
Why not a debt raise?
The firm had opted for an equity raise in order to deleverage its balance sheet.
“At every given time, we want to use the right mix for funding the business. We are leveraged right now in terms of borrowing. We don’t want to borrow to pay off existing loans. We want to be able to pay off existing loans from shareholders’ contribution, which is either a rights issue or public offer.
“When it comes to expansion or product development or marketing spend, these are areas that you have quick turn-around; you can then go for another mix of funding. Either borrowing from commercial banks, or issuance of commercial paper or issue a bond as it were. This, we would consider as it goes on.
“Right now we are leveraged. To deleverage, we would rather use investor funds. When we get to the point of further expansion, we would be thinking of other fund mixes. The company expects to pay off its bond by November.”
An FX loan is out of the way
The Fidson boss also shed more light on why the company was not keen on a dollar-denominated loan.
“The thing we never want to do is borrow in foreign currency because the cost of hedging the rate is high. What we are doing in that sense is to see whether our suppliers can continue to give us credit. Today, our suppliers are exposed to us to the tune of $2/$3 million dollars in supplier credit.
“If there is a movement in the exchange rate negatively, that will affect us. So we watch all the time how we play in the area of foreign exchange.
“I was in this market in 2007 and 2008, when a lot of people accessed the Daewoo loans. A lot of them are unable to pay.”
3 qualities to look for when hiring
In response to a question on qualities to look for when hiring staff, Ayebae gave an interesting take.
“I don’t sit at interview panels. I allow the younger generation in the office to interview those they can work with because my time is getting closer to retirement. I cannot be hiring people for others that are going to manage the company. I will rather they hire for themselves who they want. I only get to seat in the final interview of a very senior manager.”
Qualities of a good staff
Three qualities in his view are essential in good staff: Ability to make quick decisions, integrity, and longevity with the company.
“The qualities I look for are very simple. Ability to think and make decisions on your feet is one of them. In this time of innovative technology, you can only make decisions if your thinking faculties are intact. The ability to think and make decisions unsupervised is key.”
“Can this fellow be trusted? We are dealing with other people’s money because we are a publicly quoted company. Can I trust this fellow? Because you cannot be a permanent watchman, whether people are going to steal or not. You have to ask them questions that will test their integrity.”
On the third quality, he said
“Will this person be useful in the future of this company. You may be a smart kid, but if you are not going to be able to spend time with us, 10 years, 15 years of your life working for the company, I will not want you. For a very simple reason. It is very expensive to keep replacing people, especially in the science field in which we work.
“Ideas take time to be birthed, and when they are birthed, the same scientist who had that idea must be the one to superintend it to ensure it finally comes out, either as a product or service. If this fellow has gone, what happens to that idea? Two things may happen: that idea probably dies because he was the only one; he may even take the idea to another place.
“If those three are there, I can cope with others.”
The Fidson MD also painted a broad picture of where he expects the firm to be in ten years.
“In 10 years, we would have trebled in both top and bottom lines. We would be an exporting company. In ten years from now, I am sure we would have discovered one or two proprietary medicines. In our research and development. We would be a research and development based manufacturing company in Nigeria.
“Will I be there? I don’t know, but I see Fidson continuing to give value to investors the way I have done. All of those landmarks have been established. The people that we are grooming to take over you saw them.”
Focus on R and D
“I see a Fidson that is bigger, better and more scientific in her approach to doing things. When I say scientific, I mean home-grown ideas that we would incubate from our R and D.”