Award-winning Cipla SSA CFO Nishant Saxena on how he made a loss-making entity super successful
Nishant Saxena successfully took Cipla’s sub-Saharan Africa (SSA) entity from a struggling, low-margin organisation to one of the most profitable pharma players in South Africa. The success yielded double success at the CFO Awards in May 2017 for the Indian expat, who played a key role in shifting the strategy and improving the finance team. “Finance is like an internal venture capitalist responsible for ensuring the right returns on investment, and as Cipla’s largest acquisition ever, all eyes were on South Africa’s performance.”
"Finance had to get deep into our operations and highlight areas we could do better," the double-award-winning CFO explains. Nishant walked away with the Young CFO of the Year Award and the High Performance Team Award at this year's CFO Awards. "It had to be the objective voice of conscience and push back on some business units and say we shouldn't be there. We had to help make choices on what to do and what not to do, hold everyone honest to their key result areas (KRAs), and build relationships with global factories and functions. It took my CEO and me a year to convince everyone. But now this drum-beat and personal accountability have become part of our culture."
Nishant, in his role as Regional CFO and Director: Business Development, handles $600 million in business across 12 countries. To be able to support the business, it is crucial to keep things transparent and devoid of emotion, while practising empathetic listening, he says. "The icing on the cake is always if finance is able to show real value-add to the business and not just highlight mistakes. We took on added business development responsibility and committed to finding half of the company's aggressive growth target through partnerships, in-licensing, M&A or any forms of alliances," he says.
When Nishant moved to South Africa three years ago, as part of the acquisition by Cipla India, the situation was dire, he admits. "The company was struggling and losing money. Within a further 18 months, we may have had to shut down. We were sitting on a R600 million loan and the factory was losing millions every year. It was my task to create a bold strategic plan," says Nishant, illustrating the key role his team had to play.
"Finance is like an internal venture capitalist responsible for ensuring the right returns on investment, and as Cipla's largest acquisition ever, all eyes were on South Africa's performance."
Nishant's team calculated that a pharma player worth less than R400 or R500 million in revenue would be too small to be profitable. His bold turnaround plan, and also the KRAs for finance, encompassed three things: heavy growth, doubling margins, and compliance and governance. The goal was to become the second-largest pharmaceutical company in South Africa. At the time, Cipla was in sixth place. "If the market was growing at eight percent, we needed to grow at 16 to 20 percent. Our margins at the time of acquisition were 10 to 12 percent."
The plan worked brilliantly. "Cipla is currently the fastest-growing large pharmaceutical company and is the third largest in South Africa. Our margins have doubled," says a proud Nishant. "The outstanding R600 million loan we had is now fully paid off. Our factory is now fully profitable. Our ROIC has doubled. Inventory is down 30 percent and receivable days have halved. And we enjoy the highest standards of governance on audits and compliance."
Nishant says that in addition to "stretch goals", a believable action plan and regular status check was crucial. "Monitoring is very powerful, as is empowering your people. When we put up a plan for 18 percent growth, no one thought it was achievable. We said we would focus on business development and M&A to get this growth. The base business was thus responsible for half the growth and new business for the rest."
Finance's first priority in all of this was top-line stewardship, Nishant says, explaining how his team played a crucial role in a fundamental strategy shift that worked so well that Cipla is now looking to replicate it globally.
"The improved performance of nine percent growth becoming 18 percent growth was because finance worked to find partnerships, alliances, acquisitions targets, and in-licensing opportunities. For example, last year we did a massive partnership with Teva, the world's largest generics company, and this year with Activis. Finance showing the rest of the business that 18 percent growth was possible was unheard of."
The beauty of the novel approach was that it turned Cipla's weaknesses into strengths. "Other companies can now obviate their fixed costs and instead leverage Cipla's vast infrastructure. We've now done a dozen large and small deals with several other companies, who leverage our sales team to grow and share their profits with us. We have low, if any, incremental costs. It's all incremental revenues. These are either licensing and distribution agreements or we buy the IP and the legal entity."
Nishant says that while growth hides many sins, the other equally important priority was to get the margins right. A significant cost optimisation programme, working with Mckinsey, led to significant improvements in both margins, cash and ROIC. Through all this, it's important to maintain a big-picture view, Nishant says.
"Every company and its founders have a large vision that keeps the people energised every day. For example, in Cipla, we want to make medicines affordable for all, so that none shall be denied. Finance needs to help convert this compelling vision into reality but do it in a financially responsible and sustainable way."
Finance boot camp
When he took over the finance department, Nishant says it was largely a back-end function and the role of value creation or business partnering was not a focal point. "We had a seven-point agenda to transform the department. This included setting the right tone from the top, training the team extensively, and automating or simplifying where needed. We also created a shared services department," he says.
As a rule, on his first day in a new department, Nishant always runs a finance boot camp, training staff on finance skills, business skills and interpersonal skills. After this, he sets up processes: "you obviate and automate". In his opinion, a good finance team is a combination of MBAs and CAs, as the combined skill sets go much further.
When asked what percentage of time his team invests in data collection and basic accounting, Nishant says less than previously. "It's about 30 or 40 percent. I've divided my team equally into shared services - corporate finance, accounting, taxation, and receivables payable - and business finance. Everything is automated and set by the business intelligence team. This time saving can be spent on analytics. I'm happy with the split that we have now."
"The idea of setting up the BI team stemmed from the fact that there is so much data available. The BI team spends most of its time just understanding key business drivers and analysing. Just number crunching alone isn't enough to get the insights you can. The mandate of the BI Head is to deliver one business impact every month based on the strength of his team's insights."
With regards to where further improvements can be made, Nishant says automation. "When you acquire an entity, the legacy systems aren't always where you want them to be. I want to focus more on automation, shared services, B-BBEE, and people development. The managers one and two levels below me are doing fine but three levels below I haven't been able to give them enough time."
Nishant uses the 'five E model' of leadership that he learnt while he was with Procter & Gamble. It says that a good leader has five 'E qualities': Envision, Energise, Engage, Enable, and Execute. Being a good listener also helps, he says. "You get two kinds of leaders: the ones who are sure of themselves, successful, ruthless, courageous, but low on compassion. Then you get those who are compassionate and will listen to your point of view, but who won't stand up to others. I would like to be a combination of these two, though the balance is difficult."