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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.

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