‘54 Capital’ is an Africa-focused asset manager founded in 2013, investing in and managing proprietary deals across the continent. The firm focuses on high growth countries in Africa, which have favorable political, governance and economic trends.
In Ethiopia, ‘54 Capital’ has invested in several well known companies such as AquaSafe, Etete and Gulele Detergent factory. Now, besides increasing the capacities of its businesses, it also has plans to focus on exports and generating hard currency.
Capital spoke to Saad Aouad, Founder and Chief Investment Officer about the future plans and what it takes to make companies successful.
Capital: Tell us about ‘54 Capital’ and what it does here in Ethiopia
Saad Aouad: ‘54 Capital’ is an asset management firm based in the UK. We manage a number of assets in Morocco and in Ethiopia. In Ethiopia we have been investing since 2014 with around USD 100 million in a number of companies. The biggest investment was in Addis Pharmaceutical Factory. It produces generic medicines. We are going under a huge expansion to triple the capacity of the factory in the North, we also have a small plant here in Addis providing IV solutions in bags. That was a 42 million USD investment.
On top of that we have invested in a number of fast moving consumer goods, with that we really focused on selecting small factories and growing them. We really started very small and today we have reached a good size; the numbers I saw in December, and January show that we are maybe one of the top three fast moving goods company, as a group, in this country, except the breweries, which are very big.
We produce edible oil, we produce soap and detergents, we produce pasta, macaroni, flour and biscuits and more recently we acquired Aqua Safe and even more recently in 2016 we acquired Etete.
Our strategy is to put capital on expansion and working capital, but in our last board meeting the past two, three months, we have also put a very ambitious strategy of investing in capacities to export. We want to be able to generate our own foreign currency because it is one of the big issues here. Ethiopia has a lot of seeds, grains; has a lot of potential in raw materials that instead of being exported raw, it can be transformed into a product with a high value addition for the local market and for export. That is our next wave of investment.
In terms of Etete specifically, that is the last acquisition so it will require time to stabilize; putting the right management team and grow to the next level. That is what we did for example, with Tena Oil; the business was an NGO business focused, now we have transformed it into one of the leading oil brands, reducing the bill for the government; instead of importing refined oil, we bring crude oil, we refine it and that 30 to 40 percent margin is saving money for the government. We are also supplying our farmers with cattle feed free of charge, partnering to with an NGO called IFDC and 90 % of our milk comes from Debre Birehan, which is sourced from highland grazed cows.
On top of that, we have been bringing in our own dollars instead of cueing at the banks and so on. The next step is to generate our own dollars, there is a huge number of grains; soy and a bit of Sunflower, sesame and so on, that can be processed into oil and into cake for the animal feed industry here but also for export. So that is the two-year plan.
When you look at Gulele, it was a closed factory three year ago and today we are doing well. This month, we have done half of the sales of the other big factories that have been around for the past 10 years. We plan on to continue to innovate.
When we come to Etete, it needs a lot of support because it is the little sister of all the companies. The main issue of the milk sector is to select the good milk. You can go for the big numbers; taking 60,000 liters per day, but we decided to really focus on selecting quality milk because when we did our study, Etete brand name was not associated with good quality despite having a good brand marketing strategy relating to motherhood and so on.
So we really focus on selecting the good milk, transforming it into a number of products, including a new line of yogurt we just launched, I think it is a market where Holland and us are the main players. Our aim is to continue to push in that direction, we will find ways to increase our milk collection, we have invested into additional capacity to be able to handle well that milk; keep it free from any aflatoxin and bacteria. So you will not see us increasing our supply until we are absolutely sure that we can handle the extra milk and provide the market with quality product. We already have a good reaction with our yogurt and our new packaging.
Capital: How do you choose to which companies or sectors to focus on?
Aouad: We select the segment of fast moving consumer goods that are of a certain size. For example the oil sector in Ethiopia is big; Ethiopians consume a lot of oil, so that is the first criteria; the segment has to be big. Historically because we acquired existing businesses, we focused on the commodity business.
For example 555 soap was an unwrapped soap, then as we progressed, we got to improve that and we cater for the whole segment of the market; we go to the souks, supermarkets, go up country;’ providing our different products ranging from unpacked to those with different new packaging’s.
We also look at the export potential when we look at investment; we want to be able to generate our own hard currency.
Capital: What would you say were the main problems observed in some of the companies before you invested in them? Were they financial or management issues? ?
Aouad: It is a combination of a number of factors. These companies were in need of capital, all of them. But other companies in the same sector were very successful and the entrepreneurs started from the same level but they were better managed.
I think some of the companies were not successful because, well, there are several reasons like the owners had other companies and weren’t too focused on this one, or the owner not being able to convince capital providers to give them the fund and so on. We really did struggle for at least a couple of years to bring these companies to standard and make the first operating profit.
It took us time because there was a problem of management and capital and there was also a problem of manufacturing facilities. For example when we acquired Ada Food Complex, there was a spaghetti line from 1970s with no wrapper; so it was just putting one meter long spaghetti in paper. So there we invested in a machine and plan on investing more on into that segment.
Capital: Which of your investments have been the most successful?
Aouad: I don’t want to give up on anything, I would say all the businesses are doing well. One issue is that when someone is successful in one sector, everyone will go invest in that same sector and crowd the market and the price becomes the differentiate factor. That is not what we want. So I would say there are some successes that were quick but I want all the businesses to be equally successful and that is what we are working towards.
Capital: You said you will focus on exports. Would that be the oil sector?
Aouad: Not only; in the next two months we have a target to put a team of experts, and their objective is to export a number of products that we produce. Potentially Maze flour to Kenya and Uganda, potentially a number of other products that are related to our business; we plan on, although the quantity will be small, detergents at high margin and hopefully in the next few months we will start a personal care line as well and export those, but again in small quantities. We will also look into exporting AquaSafe to some Middle Eastern countries.
Our objective is to generate around 50 million USD through exports by 2020 that is how ambitious we are. Our plan is to invest 50 million USD this year on all fast moving consumer goods.