The fall of a sugar giant
BY DANIEL WESANGULA
On June 29, 2012, as the rest of the country was whipped up in political emotion, something was happening in Nucleus Estate in Kakamega. Within the estate is the giant Mumias Sugar Company, a firm that locals once fondly referred to as Musco. On that day, company executives, junior employees and villagers from the nearby Shibale shopping centre gathered in the company’s headquarters to bid farewell to someone who had been at the helm of the company for a decade.
Dr Evans Odhiambo Kidero had called time on his life as a sugar man and was a year later duly elected by Nairobians to serve as their first modern-day governor. For all intents and purposes, Kidero was leaving on a high. Company stock was soaring. Profitability had seemingly been restored and Mumias over the years had become one of the biggest contributors to the exchequer in terms of tax submissions.
Almost single-handedly, the company was the source of life directly or indirectly in the larger Mumias constituency. Easily, the company was the unseen guest at every meal and the silent listener at every conversation.
But less than two years after this change of guard at the Western Kenya-based sugar factory, the house of cards that had been elaborately put up after years of glossing over underlying issues, procurement malpractices and arbitrary, shadowy decision making has left the once mammoth company on its knees, barely able to feed itself and looking towards the central government for a lifesaving bailout package.
Those Kidero left behind are singing a different song, from a victory dance to a dirge, and he, together with other top managers at the firm and influential outsiders, are named in an audit commissioned by the Mumias board as being individually culpable for making a number of decisions whose net result has been the near collapse of the company.
From turning a pretax profit of Sh2.64 billion in 2011, the sugar miller, barely three years later was to register a Sh1.66 billion loss. The following year was even worse, with Mumias counting losses to the tune of Sh2.7 billion. During this period, shareholders had to brave lean and uncertain times.
At the end of the 2013 financial year, shareholders for the first time did not receive any dividend from their investment. In fact, from receiving dividends of Sh765 million just a year earlier, they saw their share lose an average of Sh1.09 in value. The next year, 2014, the share lost a further Sh1.07.
When declaring its end of year results to the Nairobi Securities Exchange, the sugar company attributed these losses to a number of issues, staying clear of the real ills — irregular procurement processes, dodgy agreements, keeping the company board in the dark over dealings and fictitious importation and exportation of sugar — away from the public and shareholders. The official line of communication maintained that the losses were as a result of several key issues. “The company made a loss … during the financial year ended June 30, 2014 which represents a decline in 42 per cent in earnings compared to the previous year.
This is attributed to the sharp decline in sugar selling prices and higher costs of production…,” reads the report signed by board chairman Dan Ameyo on September 11, 2014. Other reasons bandied about by the company included cane poaching, inferior sugar cane grown by farmers and declining cane yield per hectare compared to previous years.
As these declarations were being made, leakages within the company, blatant procurement fraud and a management team that seemed hell bent on grounding the company were not alluded to in the public annual statement released by the company. Private audit But in the background, board members had already commissioned KPMG to do a private audit to try and make sense of the numbers that were not adding up.
The areas of focus for the forensic scientists were transactions relating to the company’s importation of sugar, commercial transactions of the company and procurement procedures within the sugar miller. The audit report alludes to an almost deliberate attempt to keep company board members in the dark. According to the report, certain information regarding the daily dealings at the company were purposefully kept away from the board and critical information that could have saved the company hundreds of millions of shillings kept secret by a cabal of top managers.
At its peak in 2011, Mumias made profits of up to Sh2.64 billion. During the same period, its share value appreciated by more than Sh1.26 before the good times grinding to a frightening halt two years later when the first major loss of Sh1.6 billion was recorded. In a span of three years, the company was staring insolvency in the face.
In a span of three years, the company was staring insolvency in the face. Its fall from grace to grass was nearly complete before newly appointed managers, the region’s politicians and businessmen lobbied the state to provide some funding to keep the company, now a mere shell of its former self away from the auctioneer’s hammer.
After the lobbying, the company is set to receive Sh500 million from the exchequer all of which will be gobbled up by recurrent expenditure. Currently, the company is at the cusp of two possible outcomes- a miraculous recovery or a total collapse.
There are no in-betweens for Mumias. It either pulls through or falls through.