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How accountant who took a pay cut plans to fix the mess at FEP

FINANCIAL STANDARD
By Patrick Alushula | November 15th 2016
Last month he was appointed the new CEO of FEP Holdings, a firm that was recently turned away by Central Bank of Kenya in its quest to invest in the banking industry. Korir says he wants to defy all the wobbly beginning and turn around the fortunes of this loss-making investment firm.PHOTO: COURTESY

He was at first hesitant to take up the job offer. He had some reservations about Fountain Enterprise Programme (FEP) Holdings. But Maurice Korir now wants to steer the firm to safer waters.

Last month he was appointed the new CEO of FEP Holdings, a firm that was recently turned away by Central Bank of Kenya in its quest to invest in the banking industry. Korir says he wants to defy all the wobbly beginning and turn around the fortunes of this loss-making investment firm.

“Before I came here, I had never heard of FEP. I also questioned the model of raising money when people did not have share certificates,” he told Business Beat.

He came on board on October 2014 as Chief Operations Officer; a time when 175 employees were on their way out. He was recommended by Business Partner Consultants Africa that had been hired to carry out a restructuring.

Korir, who has previously worked at Mobil Oil, Airtel (when it was Kencell), Ogilvy PR and Uchumi Supermarkets, says he derives satisfaction from bringing order to chaotic organisations.

On the eighth floor of Galana Plaza in Kilimani, Korir, who featured on top 40 under 40 list in 2012, spends the whole Wednesday in office thinking of new strategies.

“I prefer to work for companies that are not yet where they would want to be. I like to fix things,” says Korir, who for about one year worked from a house in Lavington when FEP had no proper office.

He walked out of marketing and communications firm Ogilvy, took a pay cut and settled for a loss making organisation. The firm has an asset base of about Sh4.4 billion.

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“I actually took a 50 per cent pay cut to join. It is either the dumbest or best thing I would have done. But I believe it is the best,” he says.

FEP holdings, a brainchild of Dr John Kithaka, alongside 37 other investors raised Sh14 million and got incorporated in 2009. The group tried many things at ago —hotels, schools, credit services, media, technology —but shaky management plunged the businesses into losses.

Despite raising Sh4.8 billion by 2014, including Sh2.4 billion through private placement to try and unlock value for investors, hitting break-even point seemed too far. “The projects were not well managed. In 2014, the board realised that despite all these resources, the business was in losses,” says the University of Nairobi graduate.

For such a diversified investment firm, BPA Africa Consultants advised for identification of linkages in their different business and cut on business structures. According to Korir, internal controls were weak, jobs were uncoordinated, and investors were used to interacting with management all the time at a time book keeping was also weak.

In addition, a lot of money was stuck in idle assets. Korir says, key sacrifices had to be made in six months to save the 200,000-membership firm. “We had to let go of all managers expect one and also released 175 employees and scaled down on some businesses. The then CEO [Dr Kithaka] had to take a sabbatical,” he explains that the firm needed new brooms.

Weak internal controls

At that time, the firm let go of the media business and developed new investment policy to limit the sectors to invest in. Part of the decision was to avoid portfolios that cannot give them a minimum of 15 per cent return on equity every year. Idle land is now getting disposed. About Sh200 million worth of land will be sold to unlock other opportunities.

He has also helped the firm set up a shared business centre unlike before when six offices were scattered in different locations. According to Korir, the initial funds mobilisation structure was costing the firm up to Sh10 million every month. The decision to drop some staff and opt for lean office, he says, has yielded dividends with costs dropping by 43 per cent last year.

Now with 70,000 shareholders, FEP runs as a hybrid of a Sacco and an investment company. But the challenge has been to keep at bay many investors who were used to visiting the offices all the time. “It was hard to explain to these investors that we no longer need to interact with them almost daily. They thought we were running away with their money,” says Korir.

Most of its investors are Kenyans. Out of the 387 million issued shares, diaspora holds 42 million shares (11 per cent) with the rest being in the hands of locals. According to Korir, weak internal controls and uncoordinated efforts conspired against the vision of the firm. With him on board, he led the team to rework the financial books to comply with reporting standards and reflect true picture of the firm.

In addition, the firm had to part ways with its previous auditors and replaced them with Deloitte. More internal audits were initiated. “Unfortunately, we discovered that because of weak internal controls, there have been quite a number of theft in the company causing a rift with our investors,” Korir told Business Beat.

He commissioned two forensic audits, reported some cases to the Criminal Investigation Department and also brought on board asset recovery professionals.

Some Sh67 million was fully identified as stolen largely between 2012 and 2015 and Sh20 million has been recovered so far. The audit reports, Korir said, pointed to collusion between staff, suppliers and some shareholders.

“This governance lapse is what we are fixing. We realised that if we had better internal controls, we couldn’t have posted losses.

 We had cases of missing purchase orders and anyone could just order anything,” says Korir. In 2014, the firm posted a loss of Sh1.4 billion before cutting it to Sh905 million after tightening expenditure controls. This year, Korir says the firm is closer to break-even with a loss of about Sh100 million.

“Next year I must make profits. If I don’t, I am a conman,” he accompanies it with a firm look.

The firm has seen some of its projects develop at a slower pace because of capital inadequacies. The Lukenya Project, which was supposed to have facilities such as schools and industrial parks has been among those affected. The company now wants to bring on board strategic investors to strengthen the financial muscles of the firm within one year to support the collections from the rights issue.

The 146-roomed hotel project in Sagana needs about Sh900 million while Mobikash needs Sh400 million. Its schools will require Sh100 million for new dormitories with similar amount needed for Lukenya Project.

“The investment team is sourcing for an investment partner even as we keep eyes on the rights issue since we are unable to unlock enough funds internally,” he said. The firm pulled out of media business and has now abandoned its interest in banking, at least for now, after CBK denied them a licence for a microfinance bank on grounds of unclear share register and low capital.

“Our share register was not accurate. Unless it is clear, CBK cannot be comfortable,” Korir said adding that cleaning of the register is 95 per cent done and in three months the mess will be over.

Lean staff

Also, the firm announced it’s offloading its entire Sh107 million stake in third-tier lender Credit Bank. The decision comes after CBK declined to approve its application to acquire one quarter of the Simeon Nyachae’s majority-owned lender on grounds of unclear share register and low financial capability.

With the shaky beginning, Korir admits that rebuilding the brand and winning the trust of owners of capital has called for more engagement. He is training all staff, right from cleaners, into customer service and sales.

He is now banking on a lean staff to drive the business up as he expects to cut costs by another 20 per cent and boost revenues. Every year, he wants at least 30 per cent sustained growth in net earnings.

“We are on the brink of glory and credibility. We have cleaned up our mess now and maybe we should have been more open earlier,” he says.

The firm has over 10 companies spread out in different sectors such as financial services, real estate, retail, hospitality, ICT, energy, education, security and charity.

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