NFM talking tough

When it comes to competition, National Flour Mills (NFM) CEO Michael Potella is taking in front before in front takes him. The company has invested $94.5M in a new mill and some say it is to try and blunt the entry of new players on the local market. NFM chairman Gregory Trompson, in NFM’s  2003 financial report, noted that  the construcion of flour mills by two separate investors will increase the level of competition in our markets. While Potella  describes the mill as a “strategic plan” he insists that it is not a response to the new mills, like Nutrimix, entering the market. “This iniative is not a response to new mills,” he said.  A Swiss company, Buchler, is responsible for providing the mill under a turn-key project. Local contractors are Plummer and Associates. 

Asked if NFM was facing reduced market share as a result of compeition, Potella conceded there might be some loss of their market. He noted though, that NFM was not prepared to give up market share or have it wrested away from them. “If we are not competitive, market forces will deal with us,” he said in an interview last week at his NFM office on Wrightson Road. NFM, he said in the company’s 2003 report, was able to defend its market position in spite of the challanges facing the local manufacturing sector. He was also aware of the fact that NFM would be the subject of hostile attacks and therefore had to continue to formulate strategies to maintain its dominant position. Figures show that total revenue increased by 11 percent to $579.5M; while trading income in 2002 increased by six percent - from $85.3M in 2002 to $90.5M in 2003. Potella, who started as NFM assistant chief accountant in 1998, said he has given the company a diversified portfolio.

At a seminar lat week where he outlined some of of the major investments made by NFM over the years, he said certain questions need to be addressed. “Should all other feed millers make similar type of investment as NFM has made,” he asked. He wanted to know whether it was  wise to undertake this investment at this time given the threat of more intense competition for the manufacturing sector. “Are these alternative ways of improving and strengthening the industry?” NFM, he said, have repeatedly made the case for the rationalisation of the local feed milling industry. There needs to be greater collaboration amongst the feed milling sector to take advantage of the synergies, which exist, he said. This would certainly avoid duplication of resources and also improve both the cost profile and the competitiveness of locally produced feeds, he said, noting that greater collaboration is therefore necessary amongst the various feed milling fraternity, “so that we can benefit from each other’s strengths.” Potella is dismissive of the charge that NFM is a monopoly and instead chose to describe the company as a “de-facto” monopoly.

Like other manufacturers, he says NFM gets duty-free exemptions on raw material inputs, and nothing else. While compeition is good for NFM, he says it is not his greatest fear. The greatest threat to NFM is FTAA, he said and when the existing trade barries come done, that is when the company will be tested. “If we have to stay alive and be a leading manufacturer, we must be cost competitive,” he said. FTAA, he said, not only presents opportunities for manufacturers but there is also a dark side that TT must prepare for : dumping of goods, money laundering, and under-invoicing.

He was asked whether the new mill might bring reduced prices for consumers. He said while this was a possibility, a  lot depended on external commodity prices. That also goes for the new mills entering the market, he said. “If commodity prices are on the surge, prices are not going to go down,” he said.  At present, the commodities market is bullish and freight prices are also high, making it difficult to lower prices,  he said. He thinks that stockbrokers and financial analysts have not been fair to NFM. “Even though performance was not earth shatteing, we are still in line with or better than other manufacturing companies.” Earnings per share dipped seven cents; from 30 cents in 2002 to 23 cents in 2003. Asked about this, he said a look at the balance sheet shows a very strong and robust company. “There is a healthy cash balance, positive working capital and low debt/equity ration,” he said.