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08 August, 2014

Why MSC Should Be Delisted And The Board Reconstituted.

The recent development in MSC is just a piece of the iceberg, the company is really rotten and the fact that the board refused to make the KPMG forensic audit public just confirms that.

 Over the years farmers have complained over poor management and corrupt practices some of MSC senior management were engaged in. For instance, most farmers complained about the corrupt agricultural department where cane harvesting and delivery was marred with corruption, the staff in the department used to extort money from farmers for their cane to be collected and were suspected of abetting cane poaching .

Corruption and management ineptitude aside, there are several strategic decisions that were done in 2011/2012 that in my opinion played a big role in bringing this prestigious company to its knees.

First after the resignation of Kidero, the board replaced him with the financial controller.The Board argued that they had done extensive interviews and found Mr.Kebati the most suitable candidate.The board settled on an insider who would ensure continuity even though the company was facing increased competition from the market and COMESA safeguards were about to be lifted.

The decision to replace a long serving CEO with an insider would later that year show how aloof the board was in regards to the health of the company ,both financially and the company's competitiveness.

Mr.Kebati went on a borrowing spree that seem to illustrate lack of proper debt management skills and foresight . For instance, the company took billions in bank loans payable in 5yrs to invest in two capital intensive projects. One of the projects was the ethanol plant and the other a water bottling plant.


The huge Capital expenditure was funded by short term debts made up of bank overdrafts and syndicated loans,interests rates ranged from 11% to 21% .This was on a period the company was registering negative cashflow, facing stiff competition in the market, reduced sugar prices and shortage of sugar cane. Instead of staggering the two projects and invest in its existing business the company went ahead with the two projects.

The huge investments ran the risk of stretching the company thin and looking at the result that year it registered a huge loss and had a negative cash flow. The company this year has been forced to renegotiate with the lenders because the company is facing severe cash crunch.
The board has recently terminated the managing director and the commercial director blaming them for participating in an illegal importation of sugar that cost the company billions.The decision in my opinion was used to mask the real issues facing the company.

The company has since Financial year 2011/2012 outsourced their internal audit functions to Price waterhouse coopers (PWC) after the retirement of MSC chief internal Auditor. The board opted to outsource this work to a third party  arguing that  they took  that strategic decision in order to have independent reporting.So, how did the company loose Billion of shillings when they had an independent internal auditor in the name of PWC.

Whereas delivery of the Company’s strategy is the responsibility of the management team, the governance of the processes and performance monitoring is the responsibility of the Board how did the company lose Billions  without the board knowing?

Finally the board did a very interesting management change during the year.Mr Paul Murgor previously the director of agriculture was redeployed to a newly created commercial department. It is not a surprise that a guy who headed a department plagued with corruption ends up being sacked for his involvement in this latest sugar importation scandal.

Mumias sugar company should be delisted and a comprehensive restructuring done to safeguard shareholders interest.The ineptitude and management recklessness displayed by Mumias sugar board  and its management, a team that doesn’t know how to be professional ,compounded by its poor performance both as a company and at the NSE bourse necessitates this drastic action.

01 August, 2014

Mkesho to Mswari: Tracing Safaricom-EquityBank Rivalry.

"If we are going to provide mobile services for customers,we need access to SIM Cards.Whoever controls the SIM card controls the ecosystem."~ Mr John Stanley-Equity Bank, head of mobile money.

Mkesho was the catalyst to the current  battle we are witnessing  pitting Safaricom and Equity bank over a new SLIMSIM technology being deployed by Equity bank.The Mkesho solution which was a partnership between the two companies exposed a lie that is MPesa.

Since its inception Mpesa has been touted as a money transfer service, even the regulators treated it as such, but the truth was most Kenyans were using it as a savings account, most of them still do.Before M-Pesa ,Equity Bank  experienced  rapid growth targeting the common man,but the entry of M-Pesa changed everything.

Both Mpesa & Equity bank have been fighting over the same customers.Equity bank in a way sees MPesa as encroaching on its turf.Even though most banks finally embraced Mpesa, the solution is still a threat to banks and with the rollout of Mswari that threat has become a reality.

The failure of Mkesho was blamed on a strategic failure by the two companies to structure a sound revenue sharing model which, not only made the solution a little expensive to its target customer due to double transaction fees, but also created suspicion between the two. Mr Michael Joseph was once quoted in a book “Money, Real Quick: The story of M-Pesa.”  As saying 

 “There was a lot of suspicion between the two companies; the revenue we made on M-Kesho had to be 50-50. If they made more than we made, we had to get another costing pricing formula.”

There were also other reasons fronted as causes for Mkesho failure such as, sabotage by safaricom agents who saw the solution as a threat to their business, failure by the two companies to offer adequate training to their agents and a lengthy bureaucratic procedure that not only increased the cost of the solution through also hampered registration and adoption.

The truth of the matter was that the Mkesho solution was a threat to Safaricom. Equity bank was posed to cannibalize Mpesa market and threaten a growing revenue stream for safaricom. Equitybank’s quick deployment of the solution to its customers and the number of its branches clearly showed that the solution was more beneficial to Equitybank than to safaricom and the competitive advantage safaricom had in terms of Agents distribution was likely going to be threatened if Equity was going to roll out its own agents.

The launch of Mswari which is a partnership between CBA and Safaricom shows how Mkesho, although a fantastic solution, was viewed by safaricom. Mswari is a complete copy of Mkesho but they differ in terms of bureaucratic requirement .The solution makes CBA totally dependent on Mpesa and its agents.Mswari is a synergistic partnership that does not threaten any of the partners.As opposed to Mkesho, Mswari is totally dependent on Mpesa agents making it a perfect product for safaricom.

After the failure of MKesho and an apparent affront by Safaricom on Equity bank' turf  through Mswari,Equity Bank through its telecoms subsidiary, Finserve got a Mobile Virtual Network Operations (MVNO) licence and is currently awaiting the roll out of SIM cards bearing "0763xxxx" prefix.  which will take on Mpesa head on.The company also intends to deploy the SLIM SIM card technology that will make it easy for users to access their services without a need to acquire a new phone.Safaricom has launched a complaint with Communcation Authoriy of Kenya (CAK) to try and block Equity Bank's SLIM Card deployment arguing it will interfere with its network.

It is apparent we are going to witness a battle royale once Equity Bank deploys its money transfer service.Mpesa dominance is going to be tested and eventually competition in this sector  will benefit the industry and open up the country to more innovation.