New KCC now milks profits

By Benson Kathuri

New KCC has transformed from a loss making company, to a success story worth telling.

Under, Mr Francis Mwangi the managing director who joined the firm in December 2006, the firm has risen to command a significant share in the milk processing business.

Three years down the line, the company commands 40 per cent of the market and this could move to over 50 per cent in three years.

"We are anticipating a considerable growth in turnover to a tune of Sh20 billion in the next five years given the current trend in demand for milk and milk products," he said.

A worker monitors milk processing at New KCC.

"Given our existing storage capacity of two million litres and processing capacity of one million litres per day, realising this objective will not be an uphill task."

Mwangi joined the company when the management was busy rehabilitating milk processing factories and cooling plants that had been run down by the previous management in late nineties.

By the time, all the 11 factories except Eldoret, which was still under rehabilitation were up and running while demand for milk products had risen dramatically due to improved economy during the three years to 2007.

Shortly after taking over in 2003, President Kibaki administration embarked on restructuring the company that was in private hands. It bought out the previous shareholders and converted it into a state-owned enterprise.

In the first eight months in 2003/04, turnover stood at Sh2.5 billion with most of the money going to meet the costs of repairs and rehabilitation of facilities.

Despite the efforts on cost cutting, the company went ahead and made Sh8 million loss.

New strategy

"At that time, the business was grappling with real challenges in finance, low milk intake due to lost producer confidence, an ageing fleet of machinery and lack of customer good will after what had happened," said Mwangi.

Despite the strong political will shown by the Government, no public funds were committed to the company except a Sh110 million loan given two years ago to help rehabilitate Eldoret plant.

The company resulted into borrowing from commercial banks as well as from internal savings to fund their operations. Luckily, it did not struggle to sell its products, most of which were well known to consumers for decades.

The managing director Francis Mwangi says the firm has grown steadily to command the largest share in the milk processing market. Photo: Ann Kamoni/Standard

However, the company has witnessed a dramatic recovery with turnover hitting Sh4.9 billion in 2005/06 and profit increasing to Sh349 million. In 2006/07, profit rose to Sh384 million though turnover dipped to Sh4.4 billion while income to farmers had also improved significantly.

Six years ago, milk producer prices had dipped to a low of Sh6 a litre, forcing thousands of farmers to abandon dairy farming for more profitable ventures.

The turnaround

Shortly after the re-entry of the New KCC into the market place, prices rose 50 per cent to Sh12 per litre and then to Sh18 within one and a half years of operation.

"By 2006/07, we had increased farmers pay by 25 per cent from Sh18 to 20 per litre and an extra Sh1.50 for chilled milk," said Mwangi."We paid out Sh2 billion to our farmers while our milk intake had gone up by 38 per cent to 116 million litres," said Mwangi who added that prices have risen to Sh22 a litre.

The farmers are also able to access credit from some selected commercial banks through a partnership programme initiated by New KCC. The company receives over 450,000 litres of milk daily though its demand for milk for both local and export market stand at 600,000 litres daily. To boost production, the company has spent Sh50 million to buy additional coolers to enable the farmers to deliver their produce nearer home. "We have moved closer to the farmer and in the next three years, they are expected to travel a minimal distance of 5 kms or less to get to the collection centres," said Mwangi.

Despite the success, the company is facing challenges, key among them being old machinery, low milk intake as well as rising costs of milk production.

Mwangi revealed that the company would spend Sh150 million to improve its computer systems in order to enhance internal controls and create an interactive platform with its suppliers, including farmers.

The company is also reorienting its employees into the core business. He dispelled rumours that jobs would be lost saying the company was expanding as the dairy sector grows and nobody would be sacked.

"We have realised the importance of human capital and that is why we want to put in place a system that would enable us to attract and retain talent," he said.