Once
regarded as economic giants in their respective sub-sectors and fields of
operation, less can be heard and talked of them in terms of profits but only a
lot can be said about the astronomical losses that have recently been posted by
these firms. There is no doubt that the financial health of these former
economic jewels has been worsening due to various factors; known and unknown. Mumias
Sugar Company has for decades been the giant sugar miller in Kenya. Uchumi
Supermarket has arguably been the market leader in wholesale and retail until
the onset of its financial woes. Kenya Airways has been the pride of Africa until
when the financial ebb caused by mismanagement set in.
These
limping and sleeping economic giants have been victims of mismanagement which
has been the onset of their decline leading to massive losses. Starting with
Mumias Sugar Company, the last time the firm posted a profit was in 2011 where
the pre-tax profit was Kshs.2.64billion. Since 2012 to date, there has been a
stream of losses as follows: in 2012, a loss of Kshs.1billion was recorded. Come
2013, the sugar miller posted a loss of Kshs.1.6billion which worsened in 2014
when a financial loss of Kshs.2.7billion was realized. In 2015, financial
normalcy was still far-fetched when the entity made a loss of Kshs.3.4billion.
Kenya
Airways’ financial woes ostensibly began in 2012 where losses have been
recorded until this year. The last time when the shareholders and stakeholders
were smiling and in good books was in 2011 when a profit of Kshs.2.034billion
was posted by the carrier. In 2012, the troubles set in when a loss of
Kshs.4.2billion was made. The financial difficulties continued to hover around
in 2013 when it reported huge loss of Kshs.7.86 billion. The following
financial year, KQ posted a loss of Kshs.4.86billion but then in 2015, all hell
broke loose when the once acclaimed pride of Africa recorded a massive loss of Kshs.25.7billion,
money which is enough to fund the construction of another superhighway in Kenya.
Beginning
with Mumias, there have been scandalous activities and events that have
characterized the economic giant of Western Kenya. One such clandestine
activity was that in which the management squandered Kshs.1.1billion as a
result of importing illegal sugar. This questionable tender and deal to import
sugar is said to have been awarded to Dante’s Peak, a company that is primarily
owned by one Benson Sande Ndeta, a prolific businessman who is also the
chairperson of Savannah Cement. One astounding fact is that Dante’s Peak is registered
as a company that deals with cement and ballast. This deal dates back to
sometime in December 2012 when Peter Kebati had taken over as the CEO of the
sugar miller. Other former directors who have been accused alongside Mr. Kebati
include Emily Otieno who served as the Company Secretary, former Commercial
Director Paul Murgor and Chris Chepkoit who is the former Finance Director.
It
can be clearly observed that in the same year in which the deal was generated
is when a continuous stream of financial losses commenced. With utmost
certitude, the former CEO Mr. Kebati needs to answer the questions on the
financial doom and gloom that has engulfed Mumias Sugar. During Dr. Evans
Kidero’s time as the chief executive, Mr. Kebati served as the Chief Financial
Officer and I thought of him as a prime replacement of the current Governor of
Nairobi County. To my disappointment, however, it is during his unsuccessful
tenure that things began heading south.
Another
cause of the financial losses that have rocked the miller are the spiraling
administration costs and/or expenses. These are costs that are incurred as a
result of controlling and directing a firm and they include the salaries of
senior executives and the costs of general services such as accounting, contracting
and industrial relations. The administrative costs are not directly
identifiable with financing, marketing or production operations. This implies
that Mumias Sugar Company has been using a lot of money to pay the senior
management and cater for other expenses which involve the issuance of
contracts, employee relations and accounting. With diligent prescience, the new
CEO Errol Johnston needs to design a turn-around strategy that will lead to
relatively lower administration costs which may involve restructuring the
management and also awarding tenders that are corrupt-free.
On
the side of Kenya Airways, a number of factors are thought to have generated
the losses that have been recorded at the firm especially the historical
Kshs.25.7billion loss that is the largest ever in Kenya’s corporate world. The KQ
management, while releasing its financial year results for 2014/15 listed cancellation
of flights due to Ebola, a slump in tourism and competition on the continent as
the key factors that contributed to the massive loss.
Though
there is a bit of dynamism in the industrial operations, I fail to understand
why and how Ethiopian Airlines recorded a profit of $175million which is about
Kshs.18.38billion in the same financial year of 2014/15. In my opinion, KQ’s
management has to give an elaborate explanation to their losses because
Ethiopia has also been affected by the instability occasioned by Al Shabaab,
and the Ethiopian Airlines’ flights to West Africa were also suspended
temporarily due to the deadly Ebola virus and compounding it all, it also faces
stiff competition from other airlines.
The
CEO and the entire management team of KQ have simply been unable to cultivate a
strategy to continue making the airline the pride of Africa. There is definitely
an atmosphere that oozes staleness when it comes to formulating a new results-oriented
strategy at KQ. Stern action ought to have been taken the moment the loss was
reported and in fact, some key decision-makers would have been sent packing and
these include the CEO, the Chief Operations Officer (COO) and the Finance
Director and the director in charge of supply chain/procurement.
KQ’s
financial tailspin has been as a result of poor decision-making by the
management amid other internal factors and issues that can be amicably
controlled. You cannot wail and talk of stiff competition if you are pricing
the air tickets at a high price compared to your competitors. This at one time
or another has made several aircraft to fly when they are significantly empty
with very few people on board especially on the local routes. Also, KQ has very
high administrative costs which have partly contributed to the losses. Nevertheless,
the airline went on to purchase a number of the Boeing planes and the Embraer
jets whose maintenance costs have been extremely high. What we have not been
told clearly are the underhand tendering
deals that are likely to have transpired in due cause of operation. Mbuvi
Ngunze, as the CEO, is a man under siege as he is expected to normalize the
financial books of KQ.
Methinks
however, that Mr. Ngunze has fallen victim of a “rotten” system that has been
in place. He only took over in November 2014 from the then CEO Eng. Titus
Naikuni who had been at the helm since 2003. The last three years before his
exit, Naikuni captained a team that made losses and in came Ngunze whose first
year has been marked by the “mother” of all losses. But Ngunze has also been part
of the “rotten” system because he was the COO during part of Naikuni’s tenure. So
what is the way forward for KQ? There were suggestions of a Kshs.60billion
bailout by the National Treasury which is set to cover the debts that the
carrier needs to service. But with incisive forethought, the following can be
done to resuscitate the airline: instituting corrupt-free procurement procedures,
downsizing the staff and restructuring the management to curb the rising administrative
costs, re-looking into the price of tickets and a couple of other positive
changes.
Uchumi
chain of wholesale and retail stores was on a path of financial recovery when Jonathan
Ciano was appointed as the receivership manager in 2006 before being the chief
executive. Seen as the ‘king of turn-arounds’ having engineered the recovery of
Kenya Power before joining Uchumi, Ciano has had his professional acumen
tattered as the giant retailer was on the verge of making losses under his
watch. In the mid-year results announced in February this year, Uchumi made a
loss of Kshs.262million. Its financial impropriety has been traced to
procurement deals that are corrupt. For instance, at his watch before he was
sacked, Uchumi owed suppliers Kshs.1billion which is quite crazy. The most
astonishing fact is that some staff members were awarded tenders to supply
various items.
The
recent appointment of Julius Kipng’etich to head the retailer has been deemed
as a good move that will steer the firm into profit-making. The immediate
former COO of Equity Group, former MD of Kenya Wildlife Service and former MD
of the Investment Promotion Council has already announced a raft of measures to
streamline the operations of Uchumi. Among the measures include downsizing,
closure of loss-making branches and the introduction of mobile supermarkets to
tap the low-end market especially in the urban informal settlements.
To
say the least, the responsibility lies with the management to make sure that the
economic giants awaken from the slumber. But in restoring efficiency and financial
prudence requires that procurement procedures have to be above board because
this is where most entities lose finances. Explicitly, the management needs to
formulate and design strategies to deal with issues concerning competition and
market relevance.
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